Costa Mesa triplex: cashflow lift through rent reset and ADU plan

Our client closed on a 1980s Costa Mesa triplex with two long term tenants paying nearly 30 percent below market. The deal penciled to a 4.1 cap rate at purchase. Within eight months we had one unit renovated and brought to market, the second tenant amicably relocated under cash for keys, and the third tenant on a market rate lease renewal.

Cap rate moved from 4.1 to 5.6 on the same NOI math. A planned junior ADU on the back lot, currently in design review with the City of Costa Mesa, projects another twelve hundred per month in stabilized rent once permitted.

What we did: - Underwrote the deal at market rents, not in place rents, so the financing decision held up after the rent reset. - Coordinated with a 1031 qualified intermediary on the buyer side so they had thirty days of identification flexibility. - Brought in a contractor who had renovated three other small multifamily properties in Mesa Verde.