The choice between selling and refinancing an LA apartment building in 2026 is usually made on the wrong variable. Most owners decide based on sentiment — "I'm not ready to let it go." The decision is a math problem, and the math currently favors one path decisively for one group of owners and the other path decisively for another. The question is which group you are in.
Four numbers control the answer. If you know yours, the math gets clear fast.
Variable one: your current cap rate on market value. NOI divided by what the building would sell for today. If the answer is above the current refinance rate on commercial multifamily debt, the building generates a positive spread on leverage. If it is below, it does not.
Variable two: your loan-to-value on the refinanced basis. How much debt can the building support at current rates while maintaining a DSCR your lender will accept (typically 1.20 to 1.30)? For a pre-1978 RSO building in 2026, that number is materially lower than it was in 2021.
Variable three: your tax basis and depreciation schedule. A sale triggers capital gains plus depreciation recapture. A refinance does not. For owners with thirty-plus years of depreciation taken and a basis far below current value, the tax cost of selling without a 1031 can exceed 35% of the gain.
Variable four: your active management capacity. This is qualitative but decisive. Refinancing keeps the building in your hands. For every year you continue to own it, you continue to manage it — the tenant calls, the capital improvements, the LAHD compliance, the rent control math. If your capacity to do that is declining, a refinance only delays the eventual decision.
Sell when three conditions align.
You have significant equity trapped in the building and refinancing cannot release it. If a refinance at current rates and DSCR lets you pull out 20% of the current value, but you have 60% of the value sitting in equity, the trapped portion continues to compound only as fast as the building appreciates. Many LA pre-1978 buildings are appreciating slower than the broader market now because of RSO constraints. The trapped equity is underperforming.
The building's trajectory is flat or negative. If your NOI is growing at the RSO-capped 4% ceiling (or less, given the July 2026 change) and your operating costs are growing faster (insurance, property tax, compliance, labor), NOI is compressing. A compressing NOI with an expanded cap rate means declining value. Selling locks in current value.
You have a next use for the capital that outperforms the building. A 1031 into a passive DST. A diversified deployment across new acquisitions. A personal liquidity event. If the capital has a better job to do, the building is holding it back.
Refinance when three conditions align.
The building is generating meaningful positive cash flow at current debt service. If NOI minus the new debt service is comfortably positive and the DSCR gives you room for the unexpected, the building is a producing asset. The tax deferral on the unrealized gain is valuable. The optionality of selling later is valuable. Holding makes sense.
Rates are trending your way. A 2026 refinance locked in at the current rate environment gives you fixed cost certainty for 5 to 10 years. If rates fall materially over that window, you can refinance again. If rates rise, you are hedged.
The building's trajectory is positive. Post-1995 Costa-Hawkins inventory with AB 1482 upside (5% + CPI, 10% cap) is in a different trajectory class than pre-1978 RSO inventory. If your building is in the first class, refinancing preserves your position in an asset that is appreciating.
The current market tilts the decision for specific owner profiles.
Pre-1978 LA City owner, significant equity, tight cash flow. The case for selling is stronger in 2026 than it has been in ten years. The July 2026 RSO rewrite structurally caps NOI growth. The post-1995 divergence is accelerating. A refinance at current rates plus a 4% annual NOI ceiling rarely produces a positive spread on the refinance debt. Selling locks in current value and redeploys the equity.
Post-1995 LA City owner, stable cash flow, active management capacity. The case for refinancing is stronger. Costa-Hawkins exemption, AB 1482 rent upside, institutional demand if you ever choose to exit — the trajectory is intact. A refinance preserves optionality.
Owner over 65 with estate planning goals. The case for holding (which refinancing enables) is often decisive. A building held until death receives a stepped-up basis, which permanently eliminates capital gains tax on the unrealized appreciation. Selling triggers the tax. Holding and refinancing defers it until step-up.
Owner already planning to diversify or retire from management. The case for selling is clear regardless of the building's profile. Refinancing extends the management burden. That burden has a real cost — often underestimated by owners until they try to quantify it.
The difference between what a refinance will actually approve and what the owner assumes it will approve. LA commercial multifamily underwriting in 2026 is meaningfully more conservative than it was in 2021. Stressed DSCR tests, higher expense reserves, more scrutiny on deferred maintenance, lower maximum loan-to-value. Many owners who run the refinance case on 2021 assumptions end up surprised by the term sheet they actually get.
If you are weighing the two paths, get a real preliminary loan quote before you decide. Not a pro forma from a mortgage broker. A real term sheet from a real lender on your actual building with your actual rent roll and your actual expenses. The number that comes back is often 10–20% below what the owner expected.
Selling versus refinancing is presented as a philosophical choice. It is actually a quantitative one. The owner who runs the math on both paths, with current rates and current underwriting and current rent control constraints, rarely ends up uncertain. The math picks.
The uncertainty comes from running one path's math on current assumptions and the other path's math on 2021 assumptions. That is how you end up with a decision that feels close when the math does not actually support it.
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Should I sell or refinance my LA apartment building?
Depends on four variables: your current cap rate on market value, the loan-to-value a refinance will actually support at current rates, your tax basis and depreciation, and your active management capacity. Run the math on all four before choosing.
How much can I refinance for on an LA apartment building in 2026?
Typical commercial multifamily lenders in LA are underwriting to a 1.20–1.30 DSCR with stressed rate tests. Maximum loan-to-value often runs 60–70% on stabilized inventory, lower on RSO-constrained pre-1978 buildings. Your specific number depends on your NOI, lender, and building profile.
What taxes do I pay when I sell an LA apartment building?
Federal capital gains (up to 20% on long-term holds, plus 3.8% net investment income tax for higher earners), California state capital gains (up to 13.3%), and depreciation recapture (25% federal). Combined tax liability on a significant gain without a 1031 can exceed 35–40%.
Can I sell if I have existing financing?
Yes. Either the buyer pays off your loan at close (most common), or if your loan is assumable, the buyer may assume it. Assumability is rare in commercial multifamily but checking your loan documents is worth the 10 minutes.
What is DSCR and why does it matter for refinancing?
Debt Service Coverage Ratio — NOI divided by annual debt service. A DSCR of 1.25 means the building generates 25% more income than the debt costs. Lenders require DSCR minimums of 1.20–1.30 on most multifamily refinances. If your building's DSCR is below that at current rates, the refinance either requires you to contribute cash or cannot close at your desired loan amount.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap, specializing in Los Angeles multifamily transactions. $1.41 billion across 254 closed transactions.
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