Selling an apartment building in Los Angeles, start to finish

Selling an apartment building in Los Angeles comes down to proving its income, then holding on to that number through the buyer's inspection period and escrow. Most of the work that decides your price happens before the listing goes out, when you put together records a buyer can check line by line.

This guide follows the sale in the order it happens. Separate pages go deeper on closing costs and transfer taxes, the Measure ULA cliff, the documents buyers ask for and the steps and what each one waits on.

How is an apartment building priced?

From its income. A buyer starts with what the units actually collect, subtracts vacancy and the cost of running the building, and arrives at net operating income, the figure before any loan payment. That number is then held up against recent sales of similar buildings nearby, expressed as a capitalization rate, a gross rent multiplier or a price per unit.

Fresh paint does little to that math. These move it:

• The rent rules on each unit. In the City of LA, rental units with a certificate of occupancy issued on or before October 1, 1978 generally fall under the Rent Stabilization Ordinance. An occupied RSO unit's yearly increase is capped by the annual allowance, which LAHD set at 3 percent for July 1, 2026 through June 30, 2027. When a tenant moves out voluntarily or is evicted for not paying rent, the owner may set a new rent for the next one. So a below-market rent is upside a buyer collects on turnover, and a buyer will price it that way.
• Condition and compliance. Deferred repairs, an open LADBS order, an unfinished soft-story retrofit or a unit with no permit behind it all become deductions in the buyer's spreadsheet.
• Where the price lands against the ULA thresholds. Inside City limits, a sale just above $5,400,000 can leave you with less money than a sale at exactly $5,400,000. The page on Measure ULA works through it.

Decide on the net, not the headline. Before you commit, work out what you would keep: the price, less your loan payoff and any prepayment charge, less transfer taxes and selling costs, less the income tax your CPA estimates. Compare that figure with the income the building pays you now. Do this before you pick a list price, not when the closing statement arrives.

Getting the numbers ready

A buyer will rebuild your income from your own records, so give them records that survive the rebuild. Three matter more than the rest.

• The rent roll. One row per unit with the unit number, bedrooms and baths, tenant, move-in date, lease dates, current rent, the date of the last increase, the security deposit, and any concession or parking and storage charge. Mark vacant units, RSO units, and any unit occupied by you, a relative or a manager.
• The trailing twelve months. Income and expenses month by month for the last twelve months, often called a T12. Put property taxes, insurance, utilities you pay, repairs, management, payroll and contract services on their own lines.
• The leases. Every current lease and amendment, and any side agreement. When a lease and the rent roll disagree, the buyer believes the lease and starts wondering about everything else.

Reconcile the three before anyone sees them. The rent on the roll should match the lease, the deposit column should match the deposits you actually hold, and the T12 income should match what reached the bank. After that come tax bills, insurance, service contracts, permits and your LAHD registration, which are listed in full, grouped the way a buyer reviews them, on the documents buyers ask for.

How should you market the building?

There are two broad approaches. A full campaign puts the building in front of every buyer who might pay for it, with an offering memorandum, listing platforms, calls to other brokers who represent buyers, and often a date by which offers are due. A quiet sale goes to a short list of buyers who sign confidentiality agreements, so the tenants and the neighborhood hear less about it.

The trade is price discovery against discretion. Wide exposure tests your price against more buyers. A quiet sale protects your privacy but depends on the short list being the right one. Shaya helps owners sell either way, on the open market or quietly to buyers he finds, and the right choice depends on the building and on why you are selling.

Either way, buyers will want to see inside units. California Civil Code section 1954 lets an owner enter a unit to show it to prospective purchasers after reasonable notice, and it presumes 24 hours is reasonable. Put the notice in writing, group the tours so tenants are disturbed once rather than five times, and tell them plainly what is going on. Tenants who were warned make for a calmer tour than tenants who were not, and buyers notice the difference.

Offers and the purchase agreement

An offer on an apartment building often starts as a letter of intent, a short summary of price and terms that is usually not binding, before anyone pays to draft a contract. Compare offers on more than price. These terms decide whether a sale closes:

• The deposit, its size, and the date it stops being refundable.
• How many days the buyer has for due diligence and what they can cancel over.
• Whether the buyer needs a loan, and what happens if the appraisal comes in low.
• The closing date, and whether the buyer is in a 1031 exchange with deadlines of their own.
• What you must deliver and by when, such as documents, tenant estoppel certificates and notices ending service contracts.
• Who pays each transfer tax and the escrow fee, and how rent, deposits and property taxes are prorated.
• What you promise about the building, and how long those promises survive the closing.

A strong price from a buyer who needs a long loan contingency can be worth less than a lower one from a buyer who does not. Have a real estate attorney read the purchase agreement before you sign it. Shaya is not an attorney or a CPA, and the representations, the remedies if the deal falls apart and the "as is" language are legal questions.

What does the buyer check during due diligence?

Once the contract is signed, the buyer gets a set number of days to verify what you told them. Expect four kinds of checking.

• The income. Leases against the rent roll and bank statements against the T12. Buyers and their lenders often want tenant estoppel certificates too, in which each tenant confirms their rent, deposit and lease terms in writing.
• The building. Inspections of the roof, plumbing, sewer line, electrical, foundation and pests, and walks through the units on the notice section 1954 allows.
• The records. Permits and certificates of occupancy in LADBS's online building records, your LAHD registration and inspection history, and any soft-story order.
• Title and financing. The preliminary title report, and for a buyer with a loan, the lender's appraisal and its own reports on the property.

What turns up becomes a request for a lower price, a credit at closing, a repair or more time. Answer fast and in writing. The fewer surprises a buyer finds, the less there is to renegotiate, which is the whole case for getting the numbers ready before you list.

Escrow and closing

Escrow is the neutral file that holds the buyer's deposit, collects signed documents and pays everyone when the deed records. The escrow officer follows instructions both sides sign. A title company issues a preliminary report of the loans, liens and easements recorded against the property.

Four items near the end deserve early attention:

• The payoff. Escrow orders a payoff demand from your lender. Read your loan documents early for any prepayment charge, since it comes out of your proceeds.
• Tenant deposits. Within a reasonable time, Civil Code section 1950.5 has you either transfer the remaining security deposits to the new owner and notify each tenant of the transfer, the amount, and the new owner's name, address and phone number, or return each deposit to its tenant with an accounting. In escrow the money usually moves as a credit to the buyer. The notice is yours to send.
• State withholding. Unless an exemption or the alternative calculation on Form 593 applies, 3 1/3 percent of the total sales price is withheld for the Franchise Tax Board.
• Transfer taxes. The county Registrar-Recorder collects the county tax and any city tax when the deed records, including Measure ULA inside the City of LA.

Rent for the month of closing, property taxes and prepaid contracts are split between you and the buyer on the closing statement. Read the estimated statement line by line before you sign it, and check each figure against the purchase agreement.

What taxes will you owe on the sale?

Income tax on a building sale is its own calculation, and it belongs before you sign a listing agreement, not after you accept an offer. The broad outline:

• Federal capital gain. Gain is measured from your adjusted basis, and the depreciation you claimed over the years has lowered it, so the taxable gain can be larger than the rise in value.
• Depreciation recapture. The IRS taxes the part of the gain that comes from depreciation on real property, called unrecaptured section 1250 gain, at a maximum rate of 25 percent. The rule is in IRS Topic 409.
• California. The state has no lower rate for long-term gains. The Franchise Tax Board taxes them as regular income.

A 1031 exchange defers the tax when you roll the proceeds into other real property held for business or investment. The clock starts when your sale closes. You have 45 days to identify replacement property in a signed writing delivered to someone in the exchange, such as the qualified intermediary, and 180 days, or your tax return due date with extensions if that comes first, to acquire it. You cannot take actual or constructive receipt of the money, and the IRS safe harbors for avoiding that include having a qualified intermediary hold it. The IRS fact sheet on section 1031 covers the basics. If the replacement property is outside California, the Franchise Tax Board requires Form FTB 3840 every year until you sell it.

Bring your CPA the expected price, your depreciation history and your plans for the money before you list. If you want an exchange, bring in the intermediary before escrow opens.

What is different about selling in Los Angeles?

Most of it comes from the City of Los Angeles rather than the county, so first confirm whether your parcel is inside City limits. A mailing address that says Los Angeles does not prove it. Your title company can tell you from the parcel.

Rent stabilization and just cause

The RSO covers City rental units with a certificate of occupancy issued on or before October 1, 1978, with exemptions such as a parcel holding a single house. LAHD's RSO property search shows whether yours is listed. Rental units the RSO does not reach generally fall under the Just Cause Ordinance once a tenant has been there six months or the first lease has expired, whichever comes first. It limits evictions and requires relocation assistance for no-fault evictions but does not regulate rent. Those units are also under the statewide cap in Civil Code section 1947.12, 5 percent plus inflation or 10 percent, whichever is lower, unless an exemption applies, such as a certificate of occupancy issued within the past 15 years. A sale does not reset any of this. The buyer takes the tenants, their deposits and the rules that govern their rents.

SCEP inspections

LAHD's Systematic Code Enforcement Program covers any parcel with two or more residential units where at least one is rented or offered for rent. LAHD says it aims to inspect Tier 1 properties at least once every four years and Tier 2 properties at least once every two years, and it bills a SCEP fee per unit each year on the annual RSO, JCO and SCEP bill. A buyer will ask for the inspection history and whether any citation is still open.

Soft-story retrofit

Ordinance 183893 requires retrofits of wood-frame buildings of two or more stories, built under codes in effect before January 1, 1978, with parking or similar open space on the ground floor. It does not apply to residential buildings of three or fewer units. An owner who receives an order to comply has two years to submit proof of an earlier retrofit or plans to retrofit or demolish, and three and a half years to obtain a permit to start the work. If your building ever got an order, the buyer will want the order, the plans, the permits and the final sign-off. LADBS explains the program.

The Residential Property Report

Los Angeles Municipal Code section 96.300 requires the seller of residential property in the City to apply to LADBS for a Report of Residential Property Records and Pending Special Assessment Liens and deliver it to the buyer before signing the purchase agreement or before escrow closes. Order the Residential Property Report when you list, so it never holds up a closing.

Transfer taxes and Measure ULA

Sales across the county pay the county documentary transfer tax of $1.10 per $1,000 of price. The City of LA adds $4.50 per $1,000, and for transfers on or after July 1, 2026, Measure ULA adds 4 percent of the entire price above $5,400,000 or 5.5 percent at $10,900,000 or more. The county Registrar-Recorder lists four other cities with their own rates, Culver City, Pomona, Redondo Beach and Santa Monica. The closing costs page works all three City of LA taxes at two prices.