Challenge

This Newport Beach three-unit apartment building is located on the highly sought-after Balboa Peninsula in Newport Beach, just a block from the beach and bay. The owner sought to exchange into out-of-state residential income investments to avoid California legislation, increase their cash flow, diversify revenue streams, and reinvest the equity in a conservative growth market. Prior to selling, the owner was netting a meager $44,500 annually, equating to a 1.66 percent cash-on-cash return. With property taxes reassessed at the sale, a new buyer would only net $23,000 annually. The triplex was initially pitched off-market to local value-add investors for $2.5 million. Despite the lower price point, there was little success due to the modest yield and tight margins. Finding a buyer willing to acquire a property at a highly aggressive sub 1 percent cap rate presented a significant challenge for the Matthews™ brokers.

Strategy

By utilizing the Matthews™ Integrated Real Estate Management System (IREMS), industry-leading marketing, and a proprietary central database, the Matthews™ representatives were able to source a suitable investor after listing the property on the market. The agents strategically positioned the property with investment upside potential, listing the property for $2.595 million. By utilizing the Matthews™ platform, the property witnessed maximum exposure to a large, diversified buyer pool, including 1031 Exchange clients, Los Angeles and out-of-state investors, first-time buyers, and owner/occupier investment buyers. Through the national marketing of the property, the property garnered seven qualified buyers within five days on the market.

Results

With the diligent effort and keen negotiating skills of the Matthews™ agents, the seller achieved significant cash flow upside while staying true to their conservative investment philosophy. The property successfully closed escrow in under 45 days and closed $80,000 over the listing price at an extremely aggressive 0.84 percent cap rate, setting a new cap rate watermark for Balboa Peninsula triplexes. Despite being a value-add property with below-market rents, the team achieved peak-market pricing. The seller utilized the sale proceeds and exchanged them into a five-property single-family portfolio in growth markets Tennessee and Florida with business-friendly politics. The client more than doubled their cash-on-cash return to 4.63 percent, with an increased cash flow of $117,600. Ultimately, the client increased their cash flow by 164 percent, netting $73,100 more annually.