Question 1

How do I know when it's the right time to sell my apartment building?

Accepted Answer

Timing depends on a combination of market conditions, personal financial goals, and property performance. Strong indicators include shifting cap rates (Santa Monica multifamily cap rates range from 4.85% to 5.25% as of early 2026), high buyer demand, favorable interest rate trends, and your own readiness to redeploy capital. If your property has significant deferred maintenance, rising operating costs, or you are approaching a major capital expenditure like a seismic retrofit, selling before those costs hit can preserve equity. Estate planning and partnership changes are also common triggers. The best approach is to get a current Broker Opinion of Value so you can compare your property's market value against your basis and outstanding debt. That gives you a clear picture of your net proceeds and helps you decide if the timing works.

Question 2

What is a Broker Opinion of Value?

Accepted Answer

A Broker Opinion of Value (BOV) is a detailed market analysis prepared by a licensed real estate professional under a supervising broker. It estimates your property's current market value using three primary metrics: cap rate, gross rent multiplier (GRM), and price per unit. The analysis is based on recent comparable sales, current income and expenses, and prevailing market conditions in your submarket. A BOV is not a formal appraisal and is not governed by USPAP standards, but it often reflects real time market dynamics more accurately because active brokers have direct access to off market data, pending transactions, and buyer sentiment. Most BOVs for multifamily properties in West LA are provided at no cost and with no obligation.

Question 3

How long does it take to sell an apartment building in Santa Monica?

Accepted Answer

The typical timeline from listing to close for a multifamily property in Santa Monica is 60 to 120 days. This includes approximately 2 to 4 weeks of marketing and offer generation, 1 to 2 weeks of negotiation, and a 30 to 45 day escrow period. Properties that are well priced based on current market data tend to close faster. Factors that can extend the timeline include complex rent rolls with below market tenants, deferred maintenance issues discovered during inspections, rent control compliance questions, and buyer financing delays. Off market transactions can sometimes close faster because they skip the public marketing phase, but they may not achieve the highest possible price due to limited buyer competition.

Question 4

What are the costs of selling an apartment building?

Accepted Answer

The primary costs include brokerage commissions (typically 3% to 5% of the sale price depending on property size), escrow and title fees (approximately 0.5% to 1%), transfer taxes (the City of Santa Monica charges $3.00 per $1,000 of value, plus Los Angeles County charges $1.10 per $1,000), and any outstanding repair credits or tenant relocation costs. Capital gains taxes are typically the largest cost for most sellers and vary based on your individual tax situation, holding period, and depreciation history. A 1031 exchange may allow you to defer these taxes by reinvesting into a replacement property. Tax implications are complex and highly individual. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 5

Can I sell my apartment building with tenants in place?

Accepted Answer

Yes, and this is the most common way apartment buildings sell. Buyers of multifamily properties expect to acquire them with tenants in place and the existing rent roll transfers to the new owner. Under Santa Monica rent control, tenants retain all of their rights through the sale, including their current rental rates and just cause eviction protections. The buyer steps into the shoes of the seller as landlord. In fact, occupied buildings with stable, paying tenants are attractive to investors because they provide immediate cash flow. The rent roll is one of the most important documents in any multifamily sale because it directly determines the property's income and therefore its value.

Question 6

What is the selling process for a multifamily property?

Accepted Answer

The process typically follows six steps. First, your broker prepares a Broker Opinion of Value to establish a realistic asking price. Second, your broker creates a marketing package including a confidential offering memorandum with financials, photos, and property details. Third, the property is marketed to qualified buyers through broker networks, off market channels, and listing platforms. Fourth, offers are reviewed and your broker negotiates terms including price, contingencies, and timeline. Fifth, the buyer conducts due diligence during the escrow period, reviewing rent rolls, leases, operating statements, and physical inspections. Sixth, you close escrow and transfer ownership. Throughout this process, your broker manages communication with the buyer's side, coordinates with escrow and title, and keeps the transaction on track.

Question 7

How do I choose the right broker to sell my apartment building?

Accepted Answer

Look for a broker who specializes exclusively in multifamily investment sales in your specific submarket. A generalist or residential agent will not have the transaction data, buyer relationships, or underwriting skills needed to maximize your sale price. Key questions to ask: How many apartment buildings have you sold in this neighborhood in the last 24 months? Can you provide recent comparable sales data? Do you have active buyer relationships? What is your marketing strategy for my specific property? The right broker should be able to give you a detailed, data driven Broker Opinion of Value on the spot, not a vague price range. They should also understand rent control regulations, income and expense analysis, and the nuances of your local market.

Question 8

What is off-market vs on-market selling?

Accepted Answer

On market means your property is publicly listed on platforms like CoStar, LoopNet, and Crexi, and actively marketed to the broadest possible buyer pool. This approach typically generates the most competition and often achieves the highest price. Off market means the property is sold privately through broker networks and direct buyer relationships without public exposure. Owners choose off market sales for privacy, to avoid tenant disruption, or to test pricing without the commitment of a public listing. The tradeoff is that off market deals reach fewer buyers, which can result in a lower sale price. A skilled broker can run a targeted off market process that reaches serious, qualified buyers while maintaining confidentiality. In some cases, starting off market and then going on market if results are not satisfactory is an effective strategy.

Question 9

How does Santa Monica rent control affect my property value?

Accepted Answer

Santa Monica rent control directly impacts property value because it limits the income a building can generate. Properties with long term tenants paying significantly below market rents will have lower net operating income (NOI) and therefore a lower value based on income approach metrics like cap rate and GRM. However, the gap between current rents and market rents also creates upside potential that buyers price into their offers. A building with substantial upside in rents can actually attract premium pricing from value add investors who are willing to pay for the future income potential once units turn over through natural vacancy. The key factors are the current rent roll, the delta between actual rents and market rents, and the historical turnover rate for the building.

Question 10

What is the maximum allowable rent increase in Santa Monica?

Accepted Answer

The Santa Monica Rent Control Board sets the maximum allowable rent increase annually based on a percentage of the Consumer Price Index (CPI). For the 2025 to 2026 period, the general adjustment is 2.3%. This increase applies to units covered by the Santa Monica Rent Control Charter Amendment (units in buildings with certificates of occupancy issued before April 10, 1979). Landlords must provide tenants with at least 30 days written notice before implementing the increase. There are also provisions for individual rent adjustments if a landlord can demonstrate that the general adjustment does not provide a fair return on investment. These petitions go through the Rent Control Board and require financial documentation. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 11

What are the just cause eviction rules in Santa Monica?

Accepted Answer

Santa Monica has some of the strongest tenant protections in California. Landlords can only terminate a tenancy for specific reasons enumerated in the rent control law. These include nonpayment of rent, violation of lease terms, nuisance, illegal use of the unit, refusal to sign a new lease with substantially the same terms, refusal to provide reasonable access for repairs, and the owner moving into the unit (owner occupancy). The Ellis Act allows landlords to withdraw units from the rental market entirely, but with significant relocation payment obligations. Unauthorized occupants and subletting violations are also grounds for eviction. Every eviction in Santa Monica must go through proper legal procedures, and the Rent Control Board monitors compliance closely. Failure to follow correct procedures can result in penalties and the tenant being reinstated.

Question 12

How does rent control work when I sell my building?

Accepted Answer

When you sell a rent controlled building in Santa Monica, all existing tenancies and their rental rates transfer to the new owner. The buyer becomes the new landlord and must honor all current leases and rent control protections. Tenants cannot be evicted simply because the building changed ownership. The new owner is bound by the same maximum allowable rent increases, just cause eviction rules, and registration requirements as the previous owner. Buyers factor the existing rent roll into their purchase price, so properties with below market rents will sell at a price that reflects the current income, not the potential market rent income. The buyer's upside comes from natural tenant turnover, at which point they can reset rents to market under vacancy decontrol provisions.

Question 13

What is the difference between Santa Monica RSO and LA RSO?

Accepted Answer

Santa Monica and Los Angeles each have their own separate rent stabilization ordinances with different rules. Santa Monica's law covers buildings with certificates of occupancy issued before April 10, 1979, and is administered by the Santa Monica Rent Control Board. Los Angeles RSO covers buildings built before October 1, 1978, and is administered by LAHD (Los Angeles Housing Department). Key differences: Santa Monica's annual rent increase is typically lower (2.3% for 2025 to 2026) compared to LA's (which has ranged from 4% to 7% in recent years). Santa Monica has stricter eviction protections and more aggressive enforcement. Santa Monica requires landlords to register every unit and pay annual registration fees. Both cities allow vacancy decontrol under Costa Hawkins, meaning landlords can reset rents to market when a tenant voluntarily vacates.

Question 14

Do I need to register my units with the Rent Control Board?

Accepted Answer

Yes. If your building is subject to Santa Monica rent control (certificate of occupancy issued before April 10, 1979), you are required to register every rental unit with the Santa Monica Rent Control Board. Registration must be completed annually, and there is an annual registration fee per unit that is currently split between landlord and tenant. Failure to register can result in penalties and can complicate any future eviction proceedings. The Rent Control Board maintains records of each unit's base rent, allowable increases, and tenant information. Keeping your registration current is essential for legal compliance and for establishing a clean paper trail if you decide to sell. Buyers and their attorneys will review your rent control registration status during due diligence.

Question 15

What is vacancy decontrol in Santa Monica?

Accepted Answer

Vacancy decontrol means that when a tenant voluntarily vacates a rent controlled unit, the landlord can reset the rent to any amount for the next tenant. Once the new tenant moves in, their rent is then subject to annual rent control increases going forward. This provision exists under the Costa Hawkins Rental Housing Act, a state law that supersedes local rent control ordinances on this specific point. Vacancy decontrol is the primary mechanism through which landlords can bring rents to market in a rent controlled building. The rate of natural turnover in your building directly affects your income growth potential and is a key metric that buyers analyze when evaluating a purchase. Buildings with higher turnover rates will reach market rents faster, which can make them more attractive to investors.

Question 16

How does AB 1482 interact with Santa Monica rent control?

Accepted Answer

AB 1482, also known as the California Tenant Protection Act, is a statewide law that caps annual rent increases at 5% plus local CPI (up to 10% maximum) and requires just cause for eviction. However, AB 1482 explicitly exempts units that are already covered by a local rent control ordinance that is more restrictive. Since Santa Monica rent control imposes lower rent increase caps (2.3% for 2025 to 2026) and stricter eviction protections than AB 1482, most Santa Monica rent controlled units are governed by the local law, not AB 1482. Where AB 1482 becomes relevant is for newer buildings in Santa Monica (built after 1979) that are not covered by local rent control but would still fall under the state law's protections. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 17

What is a cap rate and what is a good cap rate in Santa Monica?

Accepted Answer

Cap rate (capitalization rate) is the ratio of a property's net operating income (NOI) to its purchase price or market value, expressed as a percentage. It measures the annual return an investor would receive if they purchased the property with all cash. The formula is: Cap Rate = NOI / Purchase Price. As of early 2026, Santa Monica multifamily cap rates generally range from 4.85% to 5.25% depending on building condition, rent roll, and upside potential. Low cap rates reflect high demand, strong appreciation potential, and the perceived stability of the Santa Monica rental market. A lower cap rate means a higher price relative to income. Investors accept lower cap rates in premium markets because they expect long term appreciation and rental income growth to compensate for the lower initial yield.

Question 18

What is net operating income (NOI)?

Accepted Answer

Net operating income is the total income a property generates after subtracting all operating expenses, but before debt service (mortgage payments) and capital expenditures. The formula is: NOI = Gross Rental Income + Other Income minus Vacancy Loss minus Operating Expenses. Operating expenses include property taxes, insurance, utilities, management fees, maintenance, repairs, landscaping, and any other recurring costs of running the building. NOI does not include mortgage principal or interest payments, depreciation, or income taxes. NOI is the single most important number in multifamily investing because it is the numerator in the cap rate formula and the basis for most valuation methods. Increasing NOI through higher rents, lower vacancy, or reduced expenses directly increases property value.

Question 19

What is a gross rent multiplier (GRM)?

Accepted Answer

Gross rent multiplier is the ratio of a property's sale price to its annual gross rental income. The formula is: GRM = Sale Price / Annual Gross Rent. For example, a building that sells for $3,000,000 with annual gross rents of $200,000 has a GRM of 15. As of early 2026, Santa Monica multifamily GRMs typically range from 11 to 14.5 depending on location, building condition, and the rent roll. GRM is a quick screening tool that allows investors to compare properties without needing detailed expense information. However, GRM has limitations because it does not account for operating expenses, vacancy, or the condition of the building. A property with a low GRM might seem like a bargain but could have unusually high expenses. Always use GRM alongside cap rate and price per unit for a complete picture.

Question 20

How is an apartment building valued?

Accepted Answer

Apartment buildings are valued primarily using the income approach, which is based on the property's ability to generate rental income. The three most common metrics are cap rate, gross rent multiplier (GRM), and price per unit. Cap rate divides the net operating income by the value to determine an annual return rate. GRM divides the price by gross annual rents for a quick comparison metric. Price per unit divides the total price by the number of units to benchmark against comparable sales. A broker or appraiser will analyze recent comparable sales in the submarket, review the property's actual income and expenses, and apply current market cap rates to arrive at a value range. Physical condition, location, unit mix, parking, and development potential also factor into the final valuation.

Question 21

What is price per unit and what does it tell me?

Accepted Answer

Price per unit is simply the total sale price divided by the number of units in the building. As of early 2026, Santa Monica multifamily price per unit ranges from approximately $350,000 to $600,000 or more depending on location, unit size, condition, and the rent roll. Price per unit is most useful as a comparison tool. If a comparable 10 unit building down the street sold for $450,000 per unit and your 10 unit building is in similar condition with a similar rent roll, that gives you a reasonable baseline for value. However, price per unit alone does not tell you about income, expenses, or return on investment. A building with larger units or higher rents may justify a higher price per unit. Always combine this metric with cap rate and GRM analysis.

Question 22

What are typical operating expenses for a Santa Monica apartment building?

Accepted Answer

Operating expenses for a Santa Monica multifamily property typically run between 30% and 45% of gross rental income, depending on the size and age of the building. Major expense categories include property taxes (often the largest line item, typically 1% to 1.25% of assessed value under Prop 13), insurance ($800 to $1,500 per unit annually, trending higher due to market conditions), water and sewer ($600 to $1,200 per unit annually), trash removal, landscaping, general maintenance, and management fees (typically 4% to 6% of gross rents for professional management). Older buildings tend to have higher maintenance and repair costs. Buildings where the landlord pays utilities will have significantly higher operating expenses than those where tenants pay their own. Understanding your actual expense ratio is critical for accurate valuation.

Question 23

What is a value-add apartment investment?

Accepted Answer

A value add investment is a property where the buyer can increase its value by making improvements that generate higher rents or lower operating costs. Common value add strategies in multifamily include renovating units during turnover (updated kitchens, bathrooms, and flooring), adding in unit laundry, improving common areas, installing water saving fixtures to reduce utility costs, and adding or improving parking. In a rent controlled market like Santa Monica, value add opportunities are primarily realized through vacancy decontrol. When a tenant at a below market rent vacates, the landlord renovates the unit and re rents at market rate. The delta between the old rent and the new rent creates additional NOI, which directly increases the property's value. Buyers pay a premium for buildings with significant rent upside.

Question 24

What is a 1031 exchange?

Accepted Answer

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows an investor to defer capital gains taxes when selling an investment property by reinvesting the proceeds into a new "like kind" property. Instead of paying federal and state capital gains taxes, depreciation recapture, and other applicable taxes at the time of sale, the investor rolls their equity into the replacement property and defers those taxes. The exchange must follow strict IRS rules regarding timing, property identification, and the use of a qualified intermediary. A 1031 exchange does not eliminate taxes permanently. It defers them until the replacement property is eventually sold without another exchange. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 25

What are the deadlines for a 1031 exchange?

Accepted Answer

There are two critical deadlines in a 1031 exchange, both starting from the date you close on the sale of your relinquished property. The 45 day identification period requires you to formally identify up to three potential replacement properties in writing to your qualified intermediary within 45 calendar days of closing. The 180 day exchange period requires you to close on your replacement property within 180 calendar days of selling your original property. These deadlines are absolute and cannot be extended, even if they fall on weekends or holidays (except in cases of federally declared disasters). Missing either deadline disqualifies the exchange entirely, and all deferred taxes become due immediately. Starting your replacement property search before you close on your sale is strongly recommended. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 26

Can I 1031 exchange into a different type of property?

Accepted Answer

Yes. The IRS defines "like kind" broadly for real estate. Any real property held for investment or business use can be exchanged for any other real property held for investment or business use. This means you can sell a Santa Monica apartment building and exchange into a single tenant retail property, an industrial warehouse, a medical office building, farmland, or even a Delaware Statutory Trust (DST). Many apartment building owners in rent controlled markets use 1031 exchanges to move their equity into properties in landlord friendly states with no rent control and lower operating costs. The key requirement is that both the relinquished property and the replacement property must be held for investment or productive use in a trade or business. Personal residences do not qualify. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 27

What are the most common 1031 exchange mistakes?

Accepted Answer

The most frequent mistakes include missing the 45 day identification deadline because the investor did not start searching early enough, touching the sale proceeds (the funds must go directly to a qualified intermediary, never to the seller), failing to acquire equal or greater value in the replacement property (which triggers partial tax on the difference, known as "boot"), not replacing all the debt from the relinquished property, and using the wrong entity to purchase the replacement property (the same taxpayer that sold must be the one that buys). Other common errors include identifying properties that fall through without having adequate backups, underestimating closing costs on the replacement property, and not coordinating with a qualified intermediary before the sale closes. Planning should start months before your sale closes. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 28

Do I need a qualified intermediary for a 1031 exchange?

Accepted Answer

Yes, a qualified intermediary (QI) is required for a standard 1031 exchange. The QI is a neutral third party who holds the sale proceeds from your relinquished property and then uses those funds to purchase the replacement property on your behalf. If you receive the proceeds directly at any point, the exchange is disqualified and all taxes become due. The QI also prepares the exchange documents and ensures compliance with IRS regulations. It is important to select a QI with a strong track record, proper insurance, and segregated or bonded accounts. The QI should be engaged and the exchange agreement signed before you close on the sale of your property. Your broker, CPA, or attorney can recommend qualified intermediaries. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 29

What is the current apartment market like in Santa Monica?

Accepted Answer

The Santa Monica multifamily market remains one of the most competitive in Los Angeles County. As of early 2026, cap rates generally range from 4.85% to 5.25% depending on building condition and rent roll. Properties at the low end of that range tend to have significant below market rents that buyers are pricing upside into. Very few apartment buildings come to market each year because owners tend to hold long term due to Prop 13 tax benefits, rent control protections for existing income, and strong appreciation history. When buildings do trade, they often attract multiple offers, particularly for well located properties near the ocean, Montana Avenue, or the downtown corridor. Vacancy rates remain below 5% citywide. Average rents for unrestricted units as of early 2026 are approximately $2,800 to $3,200 per month for one bedrooms and $3,500 to $4,500 for two bedrooms depending on location and condition. Buyer demand is primarily driven by private investors and family offices seeking stable, long term assets.

Question 30

Which West LA neighborhoods have the best cap rates?

Accepted Answer

Cap rates vary by neighborhood based on perceived risk, appreciation potential, and rental demand. Within the West LA market, neighborhoods further from the coast generally offer higher cap rates. As of early 2026, Palms and Mar Vista offer the highest cap rates in the Westside, ranging from 5.75% to 6.0%+, because prices per unit are lower while rents remain strong. West LA proper generally falls in the 5.5% to 5.75% range. Brentwood averages 5.0% to 5.5%. Santa Monica remains the most desirable coastal market with cap rates ranging from 4.85% to 5.25% for recent trades. Lower cap rates in premium locations are offset by stronger appreciation and lower vacancy risk. Your investment strategy, whether focused on cash flow or appreciation, should drive which submarket makes the most sense.

Question 31

What are the differences between investing in Santa Monica vs Brentwood?

Accepted Answer

The two biggest differences are rent control regulations and price points. Santa Monica has its own stringent rent control ordinance administered by the Santa Monica Rent Control Board, with lower allowable annual increases and stricter enforcement than the City of Los Angeles. Brentwood falls under the City of LA's RSO, which has historically allowed higher annual increases. Price per unit in Santa Monica is generally higher than Brentwood, particularly for properties west of Lincoln or near the ocean. Brentwood offers slightly better cap rates on average. Both markets have strong tenant demand, low vacancy, and solid long term appreciation. Santa Monica's walkability, beach proximity, and downtown amenities create a different tenant profile than Brentwood's quieter, more residential character. Many investors own properties in both markets as part of a diversified Westside portfolio.

Question 32

Is now a good time to buy an apartment building in West LA?

Accepted Answer

Market timing in real estate depends on your investment horizon, financing, and objectives. For long term holders (10+ years), the Westside of Los Angeles has consistently delivered strong returns through multiple cycles. The fundamentals that drive West LA multifamily values remain intact: limited buildable land, strong tenant demand from the entertainment, tech, and professional sectors, proximity to the coast, and high barriers to entry for new construction. Interest rates, while higher than the historic lows of 2020 to 2021, have created opportunities because some sellers are more motivated and buyer competition has decreased from peak levels. Properties that would have attracted 15 to 20 offers in 2021 may now receive 3 to 5, giving buyers more negotiating power. The best time to buy is when you find the right property at the right price for your investment goals.

Question 33

What is the average rent in Santa Monica?

Accepted Answer

Average rents in Santa Monica vary significantly based on unit type, location, building age, and whether the unit is under rent control. For market rate (unrestricted) units as of early 2025, studios average approximately $2,200 to $2,600 per month, one bedrooms average $2,800 to $3,200, and two bedrooms average $3,500 to $4,500. Units near the ocean, in downtown Santa Monica, or along Montana Avenue command premiums above these ranges. Rent controlled units occupied by long term tenants can be significantly below these market rates, sometimes 30% to 50% lower depending on how long the tenant has been in place. The spread between controlled rents and market rents is a key factor in multifamily property valuation and represents the upside potential that value add investors target when acquiring buildings.

Question 34

What is the Ellis Act?

Accepted Answer

The Ellis Act is a California state law that gives property owners the right to withdraw their rental units from the housing market. It is the only way to remove rent controlled units from the rental market in cities like Santa Monica. When an owner "goes Ellis," they must remove all units in the building from the rental market, not just selected ones. Tenants are entitled to relocation payments, which in Santa Monica can be substantial (the amounts are set by the Rent Control Board and adjusted annually). There is also a waiting period and notification requirements. If the units are returned to the rental market within a certain period, the original tenants have the right to re rent at their previous rent. The Ellis Act is often used by owners who want to convert buildings to condominiums or for personal use. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 35

What are the seismic retrofit requirements in Santa Monica?

Accepted Answer

Santa Monica has mandatory seismic retrofit requirements for certain building types. Soft story buildings (typically older wood frame apartment buildings with ground floor parking or large openings) were required to be retrofitted under the city's mandatory program. The city has issued compliance orders to affected building owners with specific deadlines for engineering assessments and construction. Retrofit costs vary widely depending on the building's size and structural conditions, but generally range from $50,000 to $200,000 or more for a typical apartment building. Some of the retrofit costs may be passed through to tenants under certain conditions, subject to Rent Control Board approval. If you own or are considering purchasing a building that has not yet completed its retrofit, factor these costs into your investment analysis. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 36

What is SB 721 and do I need balcony inspections?

Accepted Answer

SB 721 is a California law that requires inspection of exterior elevated elements, including balconies, decks, stairways, and walkways, in buildings with three or more multifamily dwelling units. The law applies to wood framed buildings where these elements extend beyond the building's exterior walls and rely on wood or wood based structural support. The initial inspection deadline was originally January 1, 2025, but was delayed to January 1, 2026. Subsequent inspections are required every six years. Inspections must be performed by a licensed architect, licensed civil or structural engineer, or a certified building inspector. If the inspection reveals conditions that pose an immediate threat to safety, emergency repairs are required. Building owners who fail to comply may face civil penalties. If you are buying or selling a multifamily building, SB 721 compliance status is a standard due diligence item. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 37

What is Prop 13 and how does it affect my property taxes?

Accepted Answer

Proposition 13 is a California constitutional amendment passed in 1978 that limits property tax rates to 1% of the assessed value (plus any voter approved bonds or assessments) and restricts annual increases in assessed value to a maximum of 2% per year. This means that owners who have held their property for many years enjoy a significantly lower tax basis than they would if taxes were based on current market value. When a property is sold, it is reassessed to the current purchase price, and the new owner's taxes reset to approximately 1% to 1.25% of the sale price. For long term holders, this reassessment can result in a dramatic increase in property taxes for the buyer. Prop 13 is one of the main reasons many California apartment building owners hold their properties for decades rather than selling. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Question 38

What is Costa-Hawkins?

Accepted Answer

The Costa Hawkins Rental Housing Act is a 1995 California state law that sets limits on local rent control ordinances. Its two most important provisions for apartment building owners are: first, it guarantees vacancy decontrol, meaning landlords can raise rent to any amount when a tenant voluntarily vacates a rent controlled unit. Second, it prohibits cities from imposing rent control on single family homes, condominiums, and buildings with a certificate of occupancy after February 1, 1995. Costa Hawkins is the reason Santa Monica landlords can reset rents to market between tenancies even though the city has strict rent control. Without Costa Hawkins, cities could potentially impose limits on what a landlord charges a new tenant. There have been multiple ballot initiatives attempting to repeal Costa Hawkins (including Proposition 10 in 2018 and Proposition 21 in 2020), all of which have failed. Consult with your CPA, tax advisor, and/or attorney for guidance specific to your situation.

Your Questions, Answered

Selling Your Apartment Building

How do I know when it's the right time to sell my apartment building?

What is a Broker Opinion of Value?

How long does it take to sell an apartment building in Santa Monica?

What are the costs of selling an apartment building?

Can I sell my apartment building with tenants in place?

What is the selling process for a multifamily property?

How do I choose the right broker to sell my apartment building?

What is off-market vs on-market selling?

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