Investment Overview
Purchase Price
$3,875,000
$204K/unit (19 units)
Seller Financing
$2,125,000
5.0% Yr 1 / 5.5% Yr 2+
In-Place Monthly NOI
$21,445
$257K annually
Closing Date
Feb 16, 2026
PSA Executed
Property Information
Property Address
486 E. Mel Ave, Palm Springs, CA 92262
Property Type
Multifamily (19 Units)
Unit Mix
17 × 1BR, 2 × 2BR
Year Built
1956
Lot Size
±0.75 acres (3 parcels)
Current Occupancy
100%
Lease Structure
Month-to-Month
Transaction Status
PSA Executed
October 31, 2025
Extension Executed
December 24, 2025
Contingencies Extended To
January 30, 2026
Close of Escrow
February 16, 2026
Seller
David W. Scott Living Trust
Capital Structure
| Source |
Amount |
% |
| Preferred Equity / Debt |
$1,750,000 |
45% |
| Seller Financing (2nd Position) |
$2,125,000 |
55% |
| Total |
$3,875,000 |
100% |
Seller Financing Terms
Principal Amount
$2,125,000
Year 1 Rate
5.0% (Interest Only)
Years 2-10 Rate
5.5% (Principal & Interest)
Year 1 Debt Service
$106,250 / yr ($8,854/mo)
Lien Position
Second (Subordinate)
Term
10 Years
Prepayment
No Penalty
Key Point: The seller may be prepared to subordinate their financing to first-position capital, which would allow Guesthouse to bring in preferred equity or senior debt while preserving the 5% seller note rate.
Comparable Hotel Sales — Palm Springs (Apr 2024 – Jul 2025)
| Property |
Rooms |
Sale Price |
$/Room |
Date |
Notes |
| El Noa Noa |
8 |
$2,850,000 |
$356,250 |
Oct 2024 |
Recently renovated boutique |
| Spirit of Sofia |
19 |
$5,615,500 |
$295,553 |
Apr 2025 |
Renovated 2023; same unit count as PSM |
| The Muse Hotel |
9 |
$2,051,000 |
$227,889 |
Dec 2023 |
1031 exchange |
| Terra Palm Springs |
13 |
$2,750,000 |
$211,538 |
Jun 2024 |
High vacancy at sale |
| The Cole |
30 |
$6,262,812 |
$208,760 |
Aug 2024 |
Auction sale |
| Comp Average |
16 |
— |
$259,998 |
|
|
| Palm Springs Manor |
19 |
$3,875,000 |
$203,947 |
Feb 2026 |
22% discount to comps |
Source: CoStar Group (July 2025). Excludes The Westcott ($180K/room) as outlier—foreclosure sale of permanently closed property requiring full renovation.
Current Rent Roll — 19 Units
| Unit |
Type |
Monthly |
Unit |
Type |
Monthly |
Unit |
Type |
Monthly |
| 1 | 1BR | $1,700 |
8 | 1BR | $1,400 |
15 | 1BR | $1,950 |
| 2 | 1BR | $1,400 |
9 | 1BR | $1,350 |
16 | 1BR | $1,400 |
| 3 | 1BR | $1,400 |
10 | 1BR | $1,350 |
17 | 1BR | $1,400 |
| 4 | 1BR | $1,350 |
11 | 1BR | $1,400 |
18 | 1BR | $1,700 |
| 5 | 1BR | $1,450 |
12 | 1BR | $1,600 |
19 | 2BR | $2,100 |
| 6 | 1BR | $1,550 |
13 | 2BR | $2,700 |
| | |
| 7 | 1BR | $1,600 |
14 | 1BR | $1,900 |
| | |
| Total Monthly |
$30,700 |
Annual |
$368,400 |
Avg/Unit |
$1,616 |
In-Place Operating Statement
| Income |
Monthly |
Annual |
| Gross Rental Income |
$30,700 |
$368,400 |
| Kitchen Rental (Hall) |
$3,500 |
$42,000 |
| Less: Vacancy (5%) |
($1,710) |
($20,520) |
| Effective Gross Income |
$32,490 |
$389,880 |
| Operating Expenses |
Monthly |
Annual |
| Electric |
$2,500 |
$30,000 |
| Gas |
$350 |
$4,200 |
| Water |
$400 |
$4,800 |
| Trash |
$400 |
$4,800 |
| Laundry / Pest / Cable / Internet |
$1,136 |
$13,632 |
| Real Estate Taxes (Reassessed) |
$3,250 |
$39,000 |
| Insurance |
$846 |
$10,152 |
| Repairs / Misc / Phone |
$373 |
$4,480 |
| Total Expenses |
$9,255 |
$111,064 |
Cash Flow Summary
| Net Operating Income |
Monthly |
Annual |
| Effective Gross Income |
$32,490 |
$389,880 |
| Less: Operating Expenses |
($9,255) |
($111,064) |
| Net Operating Income |
$21,445 |
$257,336 |
| Cash Flow After Debt Service |
Monthly |
Annual |
| Net Operating Income |
$21,445 |
$257,336 |
| Less: Seller Note (5.0% I/O, Yr 1) |
($8,854) |
($106,250) |
| Cash Flow After Seller Note |
$12,591 |
$151,086 |
Cash Flowing From Day One: The property generates $12,591/month after servicing the seller note. This positive cash flow continues during the permitting and construction phase, providing a significant offset to development carrying costs.
Key Metrics
In-Place Cap Rate
6.6%
Implied Value @ 5.5% Cap
$4,679,000
DSCR (Seller Note Only)
2.42x
Monthly NOI/Unit
$1,129
The Investment Thesis: Cash Flowing While Building Out
Unlike typical development deals that burn cash during construction, Palm Springs Manor generates positive NOI from existing tenants throughout the build-out period. As units are converted to hospitality use, rental income phases down while Hall and Guesthouse revenue phases in—maintaining cash flow continuity.
Annual Cash Flow Projection
|
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
| Existing Rental Operations |
| Rental NOI |
$170,119 |
— |
— |
— |
— |
— |
— |
| Hall (F&B / Commissary) |
| Revenue |
$250,833 |
$510,850 |
$521,067 |
$531,488 |
$542,118 |
$552,960 |
$564,020 |
| EBITDA (24-29%) |
$60,200 |
$137,930 |
$151,109 |
$154,132 |
$157,214 |
$160,359 |
$163,566 |
| Boarding House (10 Keys) |
| Revenue |
— |
$545,360 |
$833,707 |
$850,381 |
$867,389 |
$884,737 |
$902,431 |
| NOI (35%) |
— |
$190,876 |
$291,798 |
$297,633 |
$303,586 |
$309,658 |
$315,851 |
| Flagship House (7 Keys) |
| Revenue |
— |
$1,022,550 |
$1,563,201 |
$1,594,465 |
$1,626,354 |
$1,658,881 |
$1,692,059 |
| NOI (44%) |
— |
$449,922 |
$687,808 |
$701,565 |
$715,596 |
$729,908 |
$744,506 |
| Total NOI |
$230,319 |
$778,728 |
$1,130,715 |
$1,153,330 |
$1,176,396 |
$1,199,924 |
$1,223,923 |
Capital Expenditures
| Investment |
2026 |
2027 |
Total |
| Property Acquisition |
$1,750,000 |
— |
$1,750,000 |
| Hall Construction |
$2,000,000 |
— |
$2,000,000 |
| Boarding House (10 Keys) |
$1,000,000 |
$500,000 |
$1,500,000 |
| Flagship House (7 Keys) |
$1,666,667 |
$833,333 |
$2,500,000 |
| Total Capex |
$6,416,667 |
$1,333,333 |
$7,750,000 |
Sources of Funds
Seller Financing (5.0%/5.5%)
$2,125,000
Preferred Equity / Debt (TBD)
$5,625,000
Total Sources
$7,750,000
Stabilized Returns (Year 3+)
Stabilized Revenue
$2.92M
Stabilized NOI
$1.13M
Blended NOI Margin
39%
Yield on Total Investment
14.6%
Implied Valuation
| Exit Cap Rate |
Value |
Equity Multiple |
| 9.0% |
$12.6M |
1.6x |
| 8.0% |
$14.1M |
1.8x |
| 7.0% |
$16.1M |
2.1x |
Value Creation: At an 8% exit cap, stabilized NOI of $1.13M implies a property value of $14.1M against total investment of $7.75M—representing $6.4M of value creation.