Important: I'm a real estate professional, not a tax advisor or attorney. The tax and legal topics discussed below are for general informational purposes only. Every situation is different. Please consult with your CPA, tax advisor, and/or attorney for guidance specific to your circumstances before making any decisions.
You just inherited an apartment building. Maybe a parent passed away. Maybe a family trust distributed the asset. Either way, you're now the owner of a multifamily property and you probably have more questions than answers.
I've worked with dozens of families in exactly this situation over the past 19 years. Some want to keep the building. Some want to sell immediately. Most aren't sure yet, and that's the right place to start. The worst thing you can do is rush into a decision before you understand what you actually have.
Here's what I tell every new owner who calls me after an inheritance.
First 30 Days: Understand What You Own
Before you decide anything about the building's future, you need to know three things: what it earns, what it costs, and what it's worth.
If you have inherited a building and want to understand its current market value, we offer a complimentary broker opinion of value.
Get the Rent Roll
Find out who's living in every unit and what they're paying. If the previous owner managed the property themselves, this might be a handwritten notebook. If there was a property manager, they should have a current rent roll on file. Either way, you need unit by unit detail: tenant name, move in date, current rent, lease terms.
Pay attention to the spread between what tenants are paying and what comparable units rent for today. In rent controlled areas like Santa Monica, it's common to find tenants paying $1,200 for a unit that would rent at $2,800 on the open market. That gap matters enormously for valuation, whether you keep or sell.
Collect the Financials
Pull together the last two years of operating data. Property tax bills, insurance policy, utility invoices, any maintenance or repair receipts, property management statements if applicable. If the prior owner kept sloppy records, do your best to reconstruct the numbers. Your accountant can help, and you'll need this information regardless of what you decide to do.
Inspect the Property
Walk the building with someone who knows what to look for. Check the roof, plumbing, electrical panel, foundation, common areas, and every vacant unit. Deferred maintenance is extremely common in inherited properties, especially when the prior owner was elderly or had been hands off for years. You need to know what you're dealing with before you can make a smart decision.
The Property Tax Question
This is usually the first concern that comes up. In California, Proposition 13 generally keeps property taxes based on the original purchase price, with modest annual increases. When a property changes hands, it typically gets reassessed to current market value, which can mean a significant tax increase.
Proposition 19, which took effect in February 2021, changed many of the rules around inherited properties. The details vary based on whether the property is a primary residence, an investment property, and other factors. Your tax advisor can walk you through how Prop 19 applies to your specific situation, but the key takeaway is that for most inherited apartment buildings, a reassessment is likely.
To give you a general sense of the potential impact: on a building with a current market value significantly higher than its original purchase price, the annual property tax increase after reassessment could be substantial, potentially tens of thousands of dollars per year. That directly affects your Net Operating Income and, by extension, the building's value.
This is one of the first conversations you should have with your CPA. The sooner you understand your tax exposure, the better equipped you'll be to evaluate your options.
Should You Keep It or Sell It?
There's no universal answer. It depends on your financial situation, your tolerance for being a landlord, and the specific economics of the building. Here's how I'd frame the decision from a real estate perspective.
Reasons to Keep
The building generates strong cash flow even after any tax adjustments. You've got a long term investment that produces passive income and appreciates over time. If the building is well maintained and professionally managed, owning it doesn't have to be a headache.
There may also be meaningful tax advantages to holding an inherited property. Your CPA can explain how concepts like stepped up basis and depreciation apply to your situation, and how they might offset some of the increased costs.
Reasons to Sell
The building needs major capital work you can't afford or don't want to take on. The rent roll is severely below market with long term tenants, and you don't have the patience to wait for natural turnover. You have multiple heirs and the cleanest path is liquidation. You'd rather invest the proceeds in something you understand better.
There may also be timing advantages to selling an inherited property sooner rather than later. Your tax advisor can explain how the stepped up basis works and whether acting within a certain timeframe makes sense for your situation.
Many inheritors face the question of whether now is the right time to sell.
If you're leaning toward selling and want to stay in real estate, ask your CPA about 1031 exchanges. This is a strategy many investors use to defer taxes when selling one property and reinvesting into another, and it could open up options you haven't considered. A qualified intermediary and your tax advisor can walk you through the requirements and deadlines.
Rent Control: What You Need to Know
If your inherited building is in Santa Monica, West Hollywood, Beverly Hills, or the City of LA, it's almost certainly subject to rent control. This affects your options in specific ways.
Inherited properties in Santa Monica may be subject to rent control regulations that affect your options.
Rent controlled units have limits on how much you can raise rent each year, typically 3% to 10% depending on the jurisdiction. When a tenant voluntarily moves out, you can generally reset the unit to market rate. This is called vacancy decontrol, and it's the primary mechanism for increasing income on a rent controlled building.
You cannot evict tenants just because you inherited the property. The tenants have the same rights they had before the ownership change. If you're thinking about selling, know that buyers understand rent controlled buildings and they price the rent upside into their offers. A building with significant below market rents can actually command a premium from experienced investors who know how to be patient.
Hiring a Property Manager
If you've never managed rental property before, do not try to learn on the fly with an inherited building. Hire a professional property manager. The typical cost is 4% to 6% of gross collected rents, and it's worth every dollar.
A good manager handles tenant communication, maintenance requests, rent collection, lease renewals, vacancy marketing, and legal compliance. They also provide monthly financial statements, which you'll need for your accountant and for any future sale or refinance.
Ask your broker or CPA for referrals. Interview at least two or three managers and ask specifically about their experience with buildings your size in your neighborhood. A manager who specializes in 100 unit complexes in the Valley is not the right fit for a 6 unit building in Mar Vista.
What Not to Do
A few things I've seen go wrong over the years that are worth mentioning.
Don't ignore the building. Even if you're not sure what to do long term, someone needs to be collecting rent, paying the bills, and responding to maintenance requests. An unmanaged building deteriorates fast, both physically and financially.
Don't make major capital improvements before you decide whether to keep or sell. A $200,000 renovation might make sense if you're holding for 20 years. It makes no sense if you're selling in 6 months, because you won't recoup the full cost in the sale price.
Don't take legal or tax advice from the internet, including this blog post. Every inherited property situation has nuances around trust law, probate, tax elections, and local tenant regulations that require professional guidance specific to your circumstances.
And don't let anyone pressure you into a fast decision. You have time to do this right.
Build Your Team First
The most important thing you can do in the first few weeks is assemble the right professionals. You need a CPA who understands real estate, an attorney if there are probate or trust issues, and a broker who knows the local multifamily market.
If you've inherited an apartment building on the Westside and you're not sure where to start, I'm happy to help with the real estate side of the equation. Not to list it for sale. Just to understand what you have. A proper valuation takes into account the rent roll, the physical condition, comparable sales in your specific submarket, and the current market environment. It gives you a clear picture of your options so you can work with your tax and legal advisors to make the best decision for your situation.
I've helped families navigate this exact situation more times than I can count. It's never easy, but it doesn't have to be overwhelming. You just need the right team and someone willing to walk you through it without an agenda.
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This article is for general informational purposes only and should not be construed as tax, legal, or financial advice. Consult with qualified professionals regarding your specific situation.
