Deciding whether to sell or refinance your apartment building is one of the most important financial decisions you’ll make. This guide helps LA apartment owners analyze both options to determine the best path forward.

The Hold vs. Sell Decision

As an apartment building owner, you periodically face a fundamental question: The decision to sell or refinance your apartment building comes down to: Should you keep holding, refinance to pull out equity, or sell and move on? There’s no universal right answer—it depends on your specific situation, goals, and market conditions.

This guide will help you think through the decision systematically.

When Refinancing Makes Sense

1. You Want to Stay in the Game

If you love owning your building and want to keep it long-term, refinancing lets you:

• Access equity without selling
• Keep your Prop 13 tax basis
• Maintain your cash flow stream
• Avoid capital gains taxes
• Use proceeds to buy additional properties

2. Interest Rates Are Favorable

Refinancing is most attractive when:

• Current rates are lower than your existing loan
• You can improve your loan terms (longer amortization, lower payments)
• The spread between cap rates and interest rates is positive

3. You Have Significant Equity

Refinancing works best when:

• Your property has appreciated substantially
• You’ve paid down your existing mortgage
• You can pull out meaningful cash while maintaining positive cash flow

4. You Have Use for the Capital

Good reasons to refinance and pull cash:

• Buying another property
• Funding renovations to increase income
• Diversifying into other investments
• Personal financial needs

When Selling Makes More Sense

1. You Want Out of Landlording

Selling is the right choice if:

• You’re tired of property management
• You want truly passive income (DSTs, NNN properties)
• You’re retiring or relocating
• The building requires more attention than you can give

2. Major Capital Expenditures Are Coming

Consider selling before:

• Roof replacement ($50,000+)
• Plumbing overhaul ($100,000+)
• Seismic retrofit ($100,000+)
• Major system replacements

Let the next owner handle these—or factor them into your pricing.

3. The Numbers Favor Selling

Selling may be better when:

• Cap rates are compressed (high values)
• Your equity could earn more elsewhere
• Rent growth is limited (heavy RSO restrictions)
• Operating expenses are rising faster than income

4. You Can Execute a 1031 Exchange

A 1031 exchange lets you:

• Defer all capital gains taxes
• Trade into better cash flow markets
• Consolidate or diversify your portfolio
• Move from active to passive ownership

5. Partnership or Life Changes

Selling is often necessary when:

• Partners want to go separate ways
• Divorce or estate settlement requires liquidity
• You need capital for other life priorities

The Math: Refinance vs. Sell

Refinance Scenario

Current Situation:

• Property Value: $4,000,000
• Current Loan: $1,500,000
• Equity: $2,500,000
• NOI: $180,000
• Current Cash Flow: $100,000/year

After Refinance (65% LTV):

• New Loan: $2,600,000
• Cash Out: $1,100,000
• New Debt Service: ~$175,000/year (at 6.5%)
• New Cash Flow: $5,000/year

You get $1.1M cash but your annual cash flow drops to nearly zero.

Sell Scenario

Sale at $4,000,000:

• Gross Proceeds: $4,000,000
• Loan Payoff: $1,500,000
• Commissions/Closing: $200,000
• Net Before Tax: $2,300,000
• Capital Gains Tax (if not exchanging): ~$500,000
• Net After Tax: $1,800,000

Or with 1031 Exchange:

• Full $2,300,000 reinvested
• No immediate tax
• New property generating income

Key Questions to Ask Yourself

About Your Goals

1. Do I want to remain an active landlord?
2. Do I need liquidity or ongoing cash flow?
3. What’s my investment timeline?
4. Am I looking to grow, maintain, or exit?

About the Property

1. What major expenses are coming?
2. Is there remaining upside (below-market rents)?
3. How does my basis compare to current value?
4. What’s the rent control situation?

About the Market

1. Are cap rates favorable for selling?
2. Are interest rates favorable for refinancing?
3. What’s the buyer demand like?
4. Are there better opportunities elsewhere?

The Current Environment (2025)

Today’s market presents specific challenges:

• Higher interest rates: Make refinancing less attractive than 2020-2021
• Tighter lending: Banks are more conservative on multifamily
• Compressed cash flows: High rates mean lower cash-on-cash returns
• Motivated 1031 buyers: Still active and paying fair prices

Many owners who planned to refinance are finding the numbers don’t work as well as expected.

A Third Option: Hold and Wait

Sometimes the best decision is to do nothing:

• Keep collecting cash flow
• Wait for interest rates to moderate
• Let rents catch up to expenses
• Reassess in 12-24 months

There’s no rule that says you must act now.

Quick FAQs

Q: Can I refinance and then sell later?
A: Yes, but be aware of prepayment penalties on your new loan. Some loans have yield maintenance or defeasance requirements.

Q: What if I refinance and rates drop further?
A: You can refinance again, subject to prepayment terms. Some owners prefer floating-rate loans for flexibility.

Q: Should I sell before a recession?
A: Timing the market is difficult. Focus on your personal situation rather than trying to predict economic cycles.

Not sure which path is right for you? Request a valuation and let’s discuss your options.

Whether you sell or refinance your apartment building depends on your specific goals, equity position, and market conditions. Let’s discuss your options in a confidential consultation.