Most owners we meet have a number in their head. It usually came from a postcard, a neighbor's sale, or a broker who wanted the listing. Sometimes it is close. Often it is off by a lot, in either direction.
Here is how the number actually gets built.
A building is worth what its income supports
Nobody buying a twelve-unit building in Los Angeles is paying for the stucco. They are paying for the rent roll, and they are paying a multiple of it.
The shorthand is the capitalization rate — the cap rate. Take the building's net operating income, which is all the rent collected minus everything it costs to run the place before the mortgage, and divide it by the price. A building throwing off $180,000 a year that sells for $3,600,000 traded at a 5% cap.
Run it backward and you have a valuation. At a 5.5% cap, every extra dollar of annual net income adds about eighteen dollars of value. Every dollar of new annual expense takes eighteen away.
As of early 2026, Los Angeles metro multifamily was trading around a 5.1% cap rate on average, with real spread by submarket — roughly 4.7% to 5.5% on the Westside, 5.0% to 6.5% through Koreatown and Mid-City, and 5.5% to 7.5% in South LA and much of the San Fernando Valley. Those figures come from brokerage data, not a public registry, so treat them as a sense of the range rather than gospel.
The gap is the real asset
Here is the part that separates two identical buildings.
Most apartment buildings in the City of Los Angeles built on or before October 1, 1978 are covered by the Rent Stabilization Ordinance. Rents on occupied units can only rise by a set percentage each year — 3% for the year running July 1, 2026 through June 30, 2027.
But when a tenant moves out on their own, state law lets you reset that unit to market. That is the Costa-Hawkins vacancy decontrol rule, and it is the single largest driver of value in LA multifamily.
So picture two twelve-unit buildings, same block, both built in 1962.
- Building A has tenants who have been there twenty years. Rents average $1,250. Market for those units is $2,200.
- Building B turned over during the past five years. Rents average $2,100.
Building B makes more money today, so on current income it appraises higher. But Building A carries roughly $11,400 a month of hidden upside — twelve units times the $950 gap — that arrives whenever units turn.
A buyer who understands this will pay for some of Building A's gap. How much depends on how fast they think it closes, which depends on tenant age, tenancy length, and unit condition. This is why we read rent rolls line by line instead of looking at the total.
What drags the number down
Deferred maintenance gets deducted at full cost, not at your cost. A buyer's estimate of the roof, the plumbing, and the electrical comes off the price. If you can do the work for $60,000 and the buyer prices it at $110,000, that $50,000 is yours to capture by doing it before you sell — or to give away by not.
An unfinished seismic retrofit is a hard deduction. If your building is wood-frame, two or more stories, built to pre-1978 code, has ground-floor parking, and has more than three units, it was almost certainly ordered to retrofit. Every deadline in that program has now passed. A non-compliant building sells at a discount larger than the retrofit cost, because the buyer is pricing the work plus the enforcement exposure plus the uncertainty.
Unpermitted units cut both ways. They produce income an appraiser may refuse to count and a lender may refuse to underwrite. They can often be legalized — there is real state law support for it now — but the value shows up only after the permit does.
Insurance is now a line item that moves prices. Premiums in wildfire-exposed parts of Southern California have run several times what they were before 2019. At a 5.5% cap, a $15,000 annual premium increase takes roughly $270,000 off the value of the building. That is not a rounding error.
The tax cliff at $5.4 million
If your building is in the City of Los Angeles and might sell above roughly $5.4 million, stop and do this arithmetic before anything else.
Measure ULA applies a transfer tax on the gross sale price — not the gain, not the equity. As of July 1, 2026 the tiers are:
| Sale price | Total transfer tax |
|---|---|
| Up to $5,400,000 | 0.45% |
| $5,400,001 to $10,899,999 | 4.45% |
| $10,900,000 and above | 5.95% |
These thresholds adjust every July 1 for inflation, so confirm the current figures with the LA Office of Finance before relying on them.
Two things make this brutal. First, it is a cliff, not a bracket — one dollar over the threshold taxes the entire price at the higher rate. Second, it ignores your mortgage. A $6,000,000 sale with a $4,000,000 loan still owes about $267,000.
Run the numbers: selling at $5,390,000 nets you roughly $5,366,000 after transfer tax. Selling at $5,450,000 nets about $5,207,000. You take home $158,000 less by selling for $60,000 more. There is a dead zone above the threshold where a seller is strictly worse off, and it runs to about $5,616,000.
UCLA's Lewis Center found that after ULA took effect, the odds of an LA property selling above its threshold fell by as much as half, with apartment and commercial properties down 30% to 50%. The tax did not just raise costs. It froze a slice of the market.
Worth watching: a state bill, AB 736, would cap local transfer taxes at 1.5% for most property starting January 1, 2027. As of this writing it sits in committee and has not passed. We would not plan around it, but we would not ignore it either.
What we actually do
When an owner asks us what a building is worth, we do not give one number. We give three: what it is worth today on in-place income, what it is worth to a buyer who believes the rent gap closes, and what you net after transfer tax, brokerage, and the repairs a buyer will make you pay for.
Those three numbers are often further apart than owners expect. The distance between them is usually where the decision lives.
Sources
- LA Housing Department, renter protections and current RSO increase
- California Civil Code section 1954.53, Costa-Hawkins vacancy decontrol
- LA Office of Finance, Measure ULA FAQ
- UCLA Lewis Center, The Unintended Consequences of Measure ULA, April 2025
- LADBS, Soft-Story Retrofit Program