I want to walk through a real deal I closed last year — specifics on what we did, what the numbers looked like, and what made it work. Client details are anonymized for privacy, but the math is exact.
Starting point: $413K annual income. 18 months later: $739K annual income. A $326K increase — 79% jump in yearly cash flow — with capital gains deferred through a 1031 exchange.
Here's how we got there.
My client owned a mid-size multifamily building in LA they'd held for about 15 years. Appreciation had been strong — the building was worth about 3x what they paid. But the income hadn't kept pace. Long-term RSO tenants meant current rents sat 25-30% below market across the building. Annual income from the portfolio was $413K and barely growing year over year.
They wanted two things:
They also wanted to stay in real estate. A straight sale would have triggered significant capital gains tax on the 3x appreciation, plus Measure ULA exposure on the sale price. Leaving the asset class entirely wasn't the goal.
We ran this in three parallel workstreams:
First thing we did was a full market analysis. Pulled 18 months of comparable sales in the submarket, mapped cap rate trends, and benchmarked the building's loss-to-lease against its value-add potential. The building had real upside — below-market rents, unit upgrade opportunities, and a desirable location. Buyers would pay for that upside.
We listed at a price that reflected both current income and the value-add story, marketed aggressively to both 1031 buyers and local value-add investors, and closed inside 60 days. Sale price was meaningfully above what a quick off-market sale would have produced.
Then Measure ULA took its cut — about 4% of the sale price, since we crossed the $5M threshold. If you're selling an LA apartment building over $5M today, you're paying this. I wrote a full breakdown of how Measure ULA affects your proceeds if you want the math.
The 1031 exchange was the critical tax move. Instead of taking proceeds as cash (and paying capital gains), we deferred the entire gain by reinvesting into a like-kind investment property within the 45-day identification and 180-day close windows.
Replacement property was a triple-net lease (NNN) asset with a national-credit tenant on a long-term lease. In NNN structures, the tenant pays rent plus all property taxes, insurance, CAM, and maintenance. The landlord's cash flow is nearly passive — no tenant calls, no maintenance coordination, no vacancy risk during the lease term.
This moved a chunk of their portfolio from active multifamily management (rent collection, RSO compliance, turnover work, tenant disputes) into a passive income stream. For someone entering a more passive phase of their investing life, that's a real quality-of-life upgrade on top of the income numbers.
They didn't exit multifamily entirely — kept a portion of the portfolio. On those remaining assets, we ran the standard revenue optimization playbook:
None of these are magic. They're the levers every LA landlord has available. The difference is running all three simultaneously instead of one at a time.
| Metric | Before | After | Change |
|---|---|---|---|
| Annual income | $413,000 | $739,000 | +$326,000 (+79%) |
| Capital gains tax paid on sale | — | $0 (deferred via 1031) | Multi-six-figure deferred |
| Active management workload | High (RSO multifamily) | Low-medium (NNN + smaller MF) | Substantially reduced |
| Timeline start to 18-month mark | — | — | 18 months end-to-end |
This specific playbook works when three conditions line up:
It doesn't work as well for younger investors who want maximum appreciation and are willing to take on management work. Those folks should stay in value-add multifamily or move to ground-up development. Know which profile you fit before using this as a template.
One thing worth emphasizing: Measure ULA applies to the sale, not the reinvestment. So even with a 1031 exchange, you're still paying 4-5.5% transfer tax on the disposition. On this client's deal, that was a meaningful number. Some sellers try to defer Measure ULA through entity structures or timing plays — most of those don't work and create IRS scrutiny. Best to build the ULA cost into your numbers from day one.
If you're sitting on a long-held LA multifamily building with strong appreciation and weak rent growth, there's a version of this strategy that could work for you. The details matter — the right NNN target, the 1031 timing, the Measure ULA calculation, the optimization plan for retained assets. A wrong replacement property or missed 1031 deadline can tank the whole thing.
If you want to talk through whether something like this makes sense for your portfolio — free, no commitment, just a straight read on the numbers — reach out. I'll pull comps, estimate current sale price, model the 1031 options, and tell you if it pencils or if you're better holding.
Taylor Avakian
Apartment Building Broker, The Group CRE
1880 Century Park E Suite 800, Los Angeles, CA 90067
Phone: 916-996-4421 | Email: taylor@lyonstahl.com
Three levers: (1) sold an appreciated LA multifamily building at a price that reflected current market value, (2) used a 1031 exchange to defer capital gains tax on the sale and reinvest the full proceeds into a triple-net lease (NNN) property with stronger, more passive yield, and (3) on remaining assets, adjusted rents to current market on turnovers and added capital improvements to support higher rents. Combined impact: $413K to $739K annual income, capital gains deferred.
In a triple-net (NNN) lease, the tenant pays rent plus all operating expenses — property taxes, insurance, maintenance, CAM. The landlord's cash flow is more predictable and the management burden is near zero. For a client who wanted more passive income and less multifamily operational exposure, shifting part of the portfolio into NNN made sense. NNN cap rates typically run 5-7% on credit tenants, with long lease terms (10-20 years). Not the right play for every investor, but for someone looking to step down from active management while preserving yield, it's one of the cleanest exits.
