Building permit fees for new apartments are now roughly $32,000+ / unit (i.e. school impact fees, public facilities financing fees, cost/revenue impact fees, water hook-up fees, sewer hook-up fees, etc.)! The list price of the Buena Vista Apartments is $43,672/ unit. One way of looking at this is when you subtract the current building fees the remaining asking price of $11,672/unit is what you’re spending for the land and the buildings as compared to new construction! Rents will have to almost triple in order for it to be economic to build new units due to the increased cost to construct as noted above (i.e. Who would build new units at a cost of $120,000 to $140,000 / apartment when the rents are in the $400 to $650 range?). This is very much a 'Buyer's Market' and the property has been priced accordingly. Buying multi-residential property in Merced in today's "Buyer's Market" is perhaps similar to those astute investors that bought stock in Apple Computers around 5 years ago. At that time the stock was selling  for around $6 / share because its historical earnings for the prior couple of years were not good. In other words the majority of investors were looking at the prior years’ earnings and saying it wasn’t a good investment based upon earnings per share (i.e. ‘historical’ data). Instead of looking backwards at what Apple's earnings had been (i.e. historical figures) the smart investors were looking forward at what the future potential earnings would be with the introduction of the IPODs, I-phones and the new MAC computers, etc. Those that bought Apple at $6 /share 5+ years enjoyed a stock that was trading as high as $212+ / share recently .

Rents are expected to increase dramatically due to the huge increase in the city's population that will occur. Not only will the UC be increasing the student enrollment by 600 to 1,000 students each and every year over the next 25 to 30 years but much of our existing population is going to be setting up their own households over the next few years as Merced County’s SMSA (Standard Metropolitan Statistical Area) has one of the youngest populations in the entire nation with 44% of the entire County’s population of 250,000+ below 24 years of age Also there are several other major economic generators that should cause the city's population to explode and its economic base to be broadened such as the business and industry that will cluster around the UC  Merced campus, the WalMart Warehouse / Distribution Facility (1.2 M Sq. Ft.& 600+ employees), the Riverside Motorsports Park and the transfer of the former Castle Air Force Base to the County of Merced to name a few!  

At a sale price of $2,795,000 with 30% cash down (i.e. $885,500) the Buyer could obtain a new loan of approximately $1,700,000 at around 5.5% (We've seen flyers touting rates as low as 5.15% fixed for 5 years!). The Seller may potentially be willing to carry the difference, $256,500, on another piece of real estate that has adequate equity to secure the Seller’s position. The Seller would potentially be willing to carry said note with interest accruing at 6.5% for three years (i.e. no payments) to allow adequate time for the market to stabilize and then monthly payments of interest only for another 3 to 4 years thereafter. Hence the debt service for the first three years would be around $9,652.41 (Assuming a 30 year amortization at 5.5%)  allowing an immediate positive cash flow even with the current high vacancy rate. Within said three year period more than likely the rents will have risen as there won’t be any substantial new construction of apartments due to the exorbitantly high cost to build new units. Under this scenario the Buyer is obtaining 70% LTV ($1,700,000 + $256,500 = $1,956,500) with the projected monthly debt service of $9,652.41. During that 3 year holding period this amount of monthly debt service (excluding interest accrual on the second note) would be equivalent to a 4.27% interest rate on that amount of financing (i.e. $1,965,500) amortized over 30 years.