Multifamily Investing in Los Angeles: How 10+ Unit Deals Work with PQI

What does PQI do?

Kelvin Huang is part of Principle Quality Investments (PQI), a commercial real estate team that describes itself as a boutique investment team focused on multifamily investment sales in the greater Los Angeles area. PQI works on income-producing apartment buildings of 10 or more units and on 1031 exchange strategies. Its approach has four parts:

• Institutional-grade underwriting. Every deal is modeled from the rent roll up: in-place rents, expenses, value-add potential, regulatory exposure and exit scenarios.
• Off-market relationships. Some buildings change hands without ever being listed publicly. Access to those owners matters most to an exchange buyer racing an identification deadline.
• 1031 exchange strategy. Identification, sourcing and closing on a timeline the tax code sets, not the market.
• Hands-on from sourcing through close. One team stays with the deal from the first conversation to recording.

Kelvin's own practice is residential: first-time buyers, sellers and single-family investors across the San Gabriel Valley. PQI is where that practice connects to larger buildings. An investor can start with a house or a duplex and, years later, trade that equity into a 10+ unit building with the same team. More on the team is on the commercial page.

Why are 10+ unit buildings a different market?

Houses and condos are priced mostly by comparison. A buyer looks at what similar homes nearby sold for and adjusts for size and condition. Apartment buildings are priced mostly by what they earn. Two 12-unit buildings on the same street can sell for very different prices if one has rents near market and the other has long-term tenants paying half that.

The size break also changes who is at the table. Buildings of five or more units are generally marketed, financed and underwritten as commercial property. Lenders look first at the building's income and its ability to cover the debt, and buyers expect full financials, not just photos and a square-footage figure. That is why the closed-sale figures later on this page stop at four units.

How is a 10+ unit building underwritten?

Underwriting is the process of turning a seller's numbers into numbers a buyer can rely on. These are the core measures and what to check on each.

Measure	What it is	What to check
Gross scheduled rent	Total rent if every unit is leased at its current rent for a year	Does it match the leases and bank deposits, not just the offering memo?
Vacancy and credit loss	Allowance for empty units and unpaid rent	Is the seller's figure realistic for the building's history?
Operating expenses	Taxes, insurance, utilities, repairs, management, registration fees	Property tax resets on sale, so use the buyer's tax bill, not the seller's
Net operating income (NOI)	Effective income minus operating expenses, before debt	The single number most of the price rests on
Cap rate	NOI divided by price	Compare only against buildings with similar rent upside and regulation
Gross rent multiplier (GRM)	Price divided by gross annual rent	Quick screen; it ignores expenses, so never decide on GRM alone

A worked example (hypothetical numbers)

Take an illustrative 12-unit building listed at $3,800,000, collecting $30,000 a month in rent.

• Gross scheduled rent: $30,000 × 12 = $360,000 a year.
• Vacancy at 3%: $10,800, leaving effective gross income of $349,200.
• Operating expenses at 35% of effective income: $122,220.
• NOI: $349,200 − $122,220 = $226,980.
• Cap rate: $226,980 ÷ $3,800,000 = about 6.0%.
• GRM: $3,800,000 ÷ $360,000 = about 10.6.

These numbers are for illustration, not a quote on today's Los Angeles market. The point is the method. Change the expense ratio from 35% to 40% and the cap rate on the same price falls to about 5.5%. Expenses are where offering memorandums most often flatter a building, so they get the most scrutiny.

The rent roll

The rent roll is the building's most important document. A useful one shows, for every unit: the tenant's move-in date, current rent, date and size of the last increase, lease type, deposit, and any concessions. Move-in dates matter because they show how far each rent sits below market and how long that gap is likely to last. Buyers usually confirm the roll with tenant estoppel certificates before closing.

Value-add

Value-add means buying a building whose income can be raised: renovating units as they turn over, adding units, cutting expenses or improving management. In the example above, if four units each rent $600 a month below market, closing that gap would add $28,800 a year to NOI. At a 6% cap rate, that is roughly $480,000 of value. The catch is timing. Under the rent rules described below, those rents may only reach market when the tenants choose to move, and a buyer who prices in the upside as if it were immediate has overpaid.

Adding units is the other lever. State law requires cities to allow accessory dwelling units (ADUs) on lots with existing multifamily buildings: conversions of non-livable space such as storage rooms, garages or basements, for at least one unit and up to 25% of the existing unit count, plus up to eight detached ADUs, not exceeding the number of existing units, according to the HCD ADU Handbook. Each city applies its own objective standards on top, so feasibility is parcel-by-parcel.

How do rent rules affect a Los Angeles apartment building?

In Los Angeles County, regulation is part of every multifamily deal, and it is the line item that most separates good underwriting from wishful underwriting. Most older apartment buildings fall under at least one of these:

• California's Tenant Protection Act. It caps annual increases at 5% plus inflation or 10%, whichever is lower, and requires just cause to end most tenancies after 12 months. Housing issued a certificate of occupancy within the previous 15 years is exempt, on a rolling basis (Civil Code 1947.12; California Attorney General).
• Local rent stabilization. The City of Los Angeles, Pasadena and unincorporated Los Angeles County each have their own, with lower caps on older multi-unit buildings. The Attorney General's rent cap chart lists 15 Los Angeles County jurisdictions with local caps.
• Local relocation and just-cause rules that change what it costs to vacate units for renovation or redevelopment.

For underwriting, that means three questions on every building: which law applies to each unit, what the legal rent is today, and what it costs to recover a unit. The rent control guide covers the state, Pasadena and county rules in detail, with a table by jurisdiction.

Where do 2–4 unit buildings sell in the San Gabriel Valley?

Most investors who end up in 10+ unit buildings start smaller. In the San Gabriel Valley, small multifamily is concentrated in a handful of cities. Figures cover closed sales of duplexes, triplexes and fourplexes between October 2025 and September 2026. Buildings of five or more units trade as commercial property and are not in these figures.

City	2–4 unit sales	Duplex / 3–4 unit	Median price	Median days on market	All-cash
Pasadena	55	34 / 21	$1.30M	25	38%
Alhambra	44	29 / 15	$1.23M	18.5	28%
El Monte	37	19 / 18	$1.05M	16	24%
Rosemead	26	14 / 12	$1.27M	20	31%
San Gabriel	20	14 / 6	$1.37M	14	37%
Monterey Park	15	7 / 8	—	20	36%
Temple City	14	5 / 9	—	27	38%
Arcadia	11	3 / 8	—	19	30%
South Pasadena	9	3 / 6	—	15	75%

Medians are omitted for cities with fewer than 20 sales. San Marino had no 2–4 unit sales in the period.

Across the nine cities, 231 small multifamily buildings sold at a median of $1.27M, against 251 at $1.28M in the prior twelve months. Prices held flat while volume dipped. Alhambra stands out for density: 44 small-multifamily sales against 139 single-family sales, the highest ratio of the ten cities Kelvin tracks.

How do 2–4 unit owners step up to 10+ units?

A common path in the San Gabriel Valley is an owner who bought a duplex or fourplex years ago, has built up substantial equity, and is tired of self-managing a few units. Selling and trading into one larger building can consolidate management and change the risk profile. The usual tool is a 1031 exchange, which can defer capital gains tax when the proceeds go into like-kind real property within the federal deadlines. The 1031 exchange guide covers the 45-day and 180-day rules and the California filings.

Things to settle before listing the smaller property:

1. What you can buy. Equity, plus the debt a lender will place on the replacement building based on its income. Get a lender's view early.
2. The identification problem. Forty-five days goes quickly. Having candidate buildings, including off-market ones, lined up before the sale closes is the difference between a calm exchange and a forced one.
3. Management. A 12-unit building is a business. Decide whether you will self-manage or hire a property manager, and put that cost in the expenses.
4. Regulation. Moving from a single-family rental or a newer building into an older Los Angeles apartment building often means moving from lightly regulated rents to stabilized ones. Underwrite the in-place rents, not the market rents.
5. Advisors. A CPA and a qualified intermediary should be engaged before the relinquished property goes into escrow, not after.

How Kelvin works with multifamily investors

Kelvin is based at Keller Williams Executive in Alhambra and works the San Gabriel Valley daily: Alhambra, Arcadia, San Marino, Pasadena, South Pasadena and the surrounding cities. For a small-multifamily owner, that means pricing the current building against the closed sales that matter and timing the sale. For the replacement, PQI's multifamily team takes on the 10+ unit underwriting, sourcing and close.

One investor client, T. N. of South Pasadena, wrote that Kelvin "knows the San Gabriel Valley inside and out, especially around the Alhambra/South Pasadena area, and gave me sharp insight on value, timing, and long-term potential."

Frequently asked questions

What is a good cap rate for a Los Angeles apartment building?

There is no single good number. Cap rates move with interest rates, location, building age and, above all, how far in-place rents sit below market. A building with heavily stabilized rents and long-term tenants often trades at a lower cap rate because buyers are paying for future upside. Compare a building only against recent sales with similar rent regulation and upside.

What is the difference between cap rate and GRM?

Cap rate uses net operating income, after expenses. GRM uses gross rent, before expenses. GRM is quick and useful for screening, but two buildings with the same GRM can have very different cap rates if one has much higher taxes, utilities or repair costs.

Is a fourplex commercial or residential?

Buildings of two to four units are generally marketed and financed as residential property. Buildings of five or more units are generally treated as commercial multifamily, with income-based loan underwriting. That is why the sales figures on this page stop at four units.

Do rent control rules apply to every apartment building in Los Angeles County?

No. It depends on the jurisdiction, the building's age and the unit type. The statewide Tenant Protection Act covers most rentals but exempts housing built within the previous 15 years and some single-family homes. Local ordinances in the City of Los Angeles, Pasadena and unincorporated Los Angeles County add stricter caps for older multi-unit buildings. See the rent control guide.

Can I add ADUs to an existing apartment building?

State law requires cities to allow ADUs on lots with existing multifamily dwellings, including conversions of non-livable space and up to eight detached units, not exceeding the existing unit count. Each city applies its own objective standards on top, so check with the city's planning division first.

Can I 1031 exchange a duplex into a 10+ unit building?

Generally, yes. Investment real property can usually be exchanged for other investment real property, and a duplex-to-apartment-building trade is a common path. The rules on timing, debt replacement and how title is held are strict. Confirm your plan with a CPA and a qualified intermediary before you sell.

Sources

• Principle Quality Investments
• Kelvin Huang: Commercial real estate with PQI
• California Civil Code § 1947.12 (rent cap)
• California Attorney General: Landlord-tenant issues
• California Attorney General: Rent caps
• HCD Accessory Dwelling Unit Handbook (March 2026)
• Market figures: Kelvin Huang's analysis of closed 2–4 unit sales, October 2025 – September 2026