Welcome to the San Diego Multifamily Market in 2026!
Like most people, we’re heading into the new year with the usual goals — health, family, and finding a little more balance. On the San Diego multifamily and commercial real estate side, our focus looks a bit different.
We’ll be exchanging smaller properties into 5+ unit assets, continuing our education, and growing our brokerage slowly and intentionally. That has us taking a hard look at what San Diego apartment owners and investors need to be paying attention to as 2026 unfolds.
Things are changing quickly. While writing this, we received an update from the Southern California Rental Housing Association about a January 13th presentation proposing stricter rent control — a reminder that regulation and enforcement can shift fast.
This article is meant to provide real-world insight and strategic perspective, not legal or tax advice. Some of these topics deserve deeper discussion, and we’ll be releasing individual blogs over the next few days to expand on many of the subjects below.
Our goal is to look beyond the headlines — pulling from lender conversations, real transactions, and over 100 years of experience at ACI Apartments — to help owners make smarter decisions in 2026 and beyond.
SB 721: The Bill Is Now Due
As of January 1, 2026 — after a much-needed one-year delay — SB 721 is officially being enforced in San Diego.
We completed our own SB 721 inspection. It went well and still cost about $1,000 to inspect (there must be an inspection union because $1,000–$1,200 seems to be the agreed-upon cost), plus about $1,300 in repairs for cracking, loose handrails, and broken concrete.
Here’s why SB 721 matters for San Diego apartment owners, beyond health and safety.
City Enforcement of SB 721
SB 721 can be ignored — but not for long.
Starts with a compliance notice
The owner is typically given a cure period (often 30–90 days, depending on jurisdiction).
If ignored, fines begin
$100–$500 per day depending on jurisdiction
SB 721 and San Diego Multifamily Lending
We work closely and frequently with Krystle Moore of Pacific Shore Capital (5+ unit commercial) and Kenny Simpson of The Simpson Team (SFR and 2–4 residential), and recently asked how SB 721 is impacting San Diego commercial and multifamily lending.
“From a lending perspective related to California’s SB 721, lenders are currently taking a measured approach. At this time, most lenders are requiring a signed letter from borrowers confirming their intent to comply with SB 721 and complete any required inspections and repairs. However, lenders have not yet broadly required that repairs be completed prior to closing—though this may evolve in the coming months.”
— Krystle Moore
“There are lenders that can still do the loan if there is health and safety issues that are found on these reports within condo projects, but it is case by case depending on the report and issues. If there is NO health/safety issues on the report and minor items, we can still close those with conventional financing. SB 721 has been more of an issue with condos for me.” — Kenny Simpson
Sales Decisions When Dealing With SB 721
Sales are where real decisions need to be made for San Diego multifamily owners.
If you haven’t done the inspection and are not planning to complete repairs, the best option is to be upfront and get a signed document stating the buyer is assuming responsibility. This usually comes with a price reduction, and you need to be willing to accept that.
If you agree to do the inspection, be prepared for the worst-case scenario:
Inspection cost of roughly $1,200
Inspection comes back with required fixes and the clock starts
So far we’ve seen anywhere from $1,300 to $20,000 in repairs
Once inspected, lenders may be less likely to loan since the property is now framed as a health and safety issue
Overall, SB 721 must be on your radar in 2026. It isn’t going away. If you’re unsure how these regulations affect your property, this is exactly where a strategy call matters more than a valuation.
AB 1157: Rent Control Is Back on the Menu in San Diego
Rent control isn’t a phrase you want to hear in early January 2026, but AB 1157 is being brought to Assembly members on January 13th.
At our monthly sales meeting, nearly every long-standing San Diego broker felt it would pass — but that single-family homes and condos will likely be removed, just like last time. When rent control includes SFRs, it adds a massive block of opposed voters. Historically, that portion gets stripped out.
That said, stricter rent control in San Diego is very much on the table.
Key AB 1157 Changes If Passed
Lowers the statewide rent cap from 5% + CPI (max 10%) to 2% + CPI or 5% (whichever is less)
Makes rent caps permanent by removing the sunset provision
Strengthens Just Cause eviction protections
If you haven’t done a rent increase in a while, it may be time to think it over. If you’re valuing a San Diego multifamily property based on pro forma rents, timing will matter — especially as this moves toward a vote.
At the time of writing, AB 1157 is proposed and scheduled for Assembly consideration, not yet enacted.
2026: A Year of Concessions
We aren’t talking about skipping dessert because you drank your calories.
Concessions are materially impacting effective rents in San Diego. Operators are “buying occupancy” with free rent and incentives, and this dynamic is expected to persist into 2026.
Roughly 38% of properties are offering incentives
6,000+ units delivered in 2025, a 20-year high
Supply remains the main pressure point across most San Diego submarkets
We all deal with turnover. On our most recent vacancy, I was bordering on a price reduction. With calmer advice (I’m grateful to have Dave Savage and the ACI team in my corner), we offered half a month free and were able to keep our asking rent and maintain our properties value.
Tenants still prefer — assuming the property is in good shape — an owner they can communicate with. If they stay longer than a year, these concessions often make all the difference and you don’t have to match new construction scrambling to fill vacancies.
Watch Your Property Managers
Multiple clients are actively looking for new management, and others have seen values reduced because rents are being held too low.
The key in San Diego multifamily real estate is market rent or about 10% below market — one rent increase away. Some property managers aim for 15–20% below market, and it is dramatically hurting long-term value.
Have a rent survey done and push your managers. They work for you.
ADU vs. DU: If You Have the Choice, Choose Carefully
ADUs have been the buzzword of the last six years, but a dwelling unit is still a dwelling unit. If you have the option to choose between an ADU and a standard DU in San Diego, the decision matters more than most people realize.
ADUs under 750 square feet are exempt from many development impact fees. They’re easier to push through the City, move faster, and add that buzzword back into your sale. Buyers want them, and lenders are comfortable underwriting them.
A dwelling unit, on the other hand, gets hit with fees — and we found this out the hard way.
We paid $14,458 in impact fees for a 300-square-foot studio built out of an existing garage. That number still hurts. But in our case, due to space, timing, and use, it was still the best solution. The DU allowed us to:
Airbnb the unit
Generate higher short-term income
Retain the ability to add two ADUs in the future
The takeaway isn’t that ADUs are always better. It’s to look at the space you have, understand San Diego zoning, evaluate use, and make a decision that aligns with your long-term hold strategy — not just the cheapest option today.
Junior ADUs: AB 1154 Changes the Rules in 2026
As of January 1, 2026, AB 1154 is officially in effect, changing how Junior ADUs (JADUs) are treated in San Diego — particularly when it comes to financing and resale.
Under AB 1154, non–owner-occupied properties with a legally permitted JADU can now be financed as non-owner-occupied, and lenders are allowed to consider JADU rental income. Prior to this, many lenders required owner occupancy or discounted the income entirely.
That said, AB 1154 does not make JADUs equal to ADUs.
Many JADUs still:
Share utilities or access
Carry deed restrictions
Receive inconsistent treatment from lenders and appraisers
In practice, some lenders will count JADU income, some will partially discount it, and others will still treat it conservatively depending on layout and documentation.
The takeaway: AB 1154 improves flexibility, but JADUs should still be viewed as a supplemental income strategy — not a primary value driver — especially if resale or refinancing is part of your long-term plan.
AB 1033: A New (But Complicated) Exit Strategy for ADUs
AB 1033, effective in 2026, allows ADUs to be sold separately from the primary residence as condominiums, subject to local approval, subdivision requirements, and HOA formation.
This is a major policy shift. Historically, ADUs could generate income but could not be sold independently. AB 1033 introduces a potential condo-style exit strategy for certain properties.
However, this is not automatic:
Cities still control approvals
Condo mapping and legal costs apply
Buyer demand and financing remain unproven
The takeaway: AB 1033 creates opportunity, not certainty. It may work for specific infill or small-lot projects, but it is not a universal solution and should be evaluated carefully before building. Local adoption, subdivision approval, and financing standards will ultimately determine whether this strategy is viable in San Diego.
“Starting in April of 2026 Fannie/Freddie will finally allow more than 1 ADU per property. They will allow a SFR to have 3 ADUS or a 2 unit to have 2 ADUS or a 3 unit to have 1 ADU, if it meets zoning laws/rules for the area and its stays under 5 units, Fannie and Freddie could be an option. Always check with a lender to verify all other guidelines.” – Kenny Simpson, The Simpson Team
What to Build: Refinance Over Flip
San Diego is being oversupplied with smaller, non-family oriented units, and we expect price-per-unit premiums to favor well-designed 2- and 3-bedroom units moving forward. While income drove deals from 2020–2023, unit quality and price per unit matter again in 2026.
Ground Up ADUs Work Best for Refinance and Hold
Ground-up ADUs rarely pencil well for short-term flips. Construction costs, timelines, and valuation friction make quick sales difficult.
Where ADUs excel is long-term cash flow. When you buy a home or small multifamily property in San Diego, you effectively get “free dirt” — the land is already paid for. Adding units increases income without repurchasing land, making ADUs ideal for:
- Cash-flow growth
- Long-term holds
- Refinance strategies after stabilization
Selling newly built ADUs generally makes more sense after a 2+ year hold, once rents have seasoned and lenders can fully underwrite the income.
With AB 1033, this land value becomes even more compelling. The potential to sell ADUs separately as condos adds long-term flexibility and enhances parcel value — but it is not a short-term play.
If You’re Flipping, Convert Instead
For investors focused on value-add and exit, conversions still outperform new construction.
The best flip projects are:
- Reworking existing square footage
- Converting garages or storage
- Renovating units and raising rents
These deals cost less, move faster, appraise cleaner, and sell with fewer lender issues.
Bottom line:
ADUs are a powerful tool for cash flow and portfolio growth. If your goal is to flip, conversions and renovations remain the smarter path in San Diego.
Portfolio Moves in 2026 for San Diego Multifamily Owners
This is where we’re spending the most time with clients.
2–4 Unit Owners: Look to Up Your Unit Count
Down payment is often the challenge, but if you’ve built equity, now is the time to seriously look at the 5+ unit San Diego commercial market, especially 8+ units.
The 2–4 unit market is holding strong on values, while larger San Diego apartment buildings are softening. In Q3 of 2025, you could purchase six units in 92104 for the same price as four.
That pricing disconnect is why:
We are shifting our own portfolio
Many of our clients are doing the same
Fewer properties and more units allow you to scale faster, safeguard vacancy, simplify management, and better weather regulatory changes.
Your first step should be a portfolio valuation. This is different from a standard valuation. We’re not just telling you what your property is worth — we’re looking at debt, equity, exchange options, and what actually advances your investment career.
5+ Unit Owners: Soft Pricing Creates Opportunity
This sounds counterintuitive, but pricing is softening across San Diego commercial real estate as well.
Selling now gives you the same opportunity current buyers are receiving. You can use the equity you’ve built to improve:
Location
Unit count/mix
Tenant profile
If you’re dealing with deferred maintenance, this is often the cleanest and most affordable way out. You sell to someone who wants to renovate and raise rents, while you exchange into a better-conditioned building.
The most common pushback we hear:
“I don’t want to go through the whole exchange process.”
That’s fair. But the real question is:
Would you rather grow at 7% annually on a $2M asset or a $3M asset?
Another concern:
“What if my cash flow goes down?”
In San Diego especially, exchanging into a larger building or better unit mix almost always shows exponential improvement over a 10-year window — even if year one feels tight.
This is the year to think two moves ahead, not just about today’s cash flow.
Final Thoughts on San Diego Multifamily Real Estate in 2026
Alright — my longest written blog of the year.
If you found this helpful, we highly recommend subscribing to our email list and following us on Instagram and LinkedIn. This is where we share San Diego multifamily market updates, real deal insights, and the strategy conversations we’re having daily with owners — not just headlines.
Next week we’ll be releasing our Q4 San Diego multifamily market report, followed shortly by our 2025 year-in-review, breaking down what actually moved the market and where we see opportunity heading into 2026.
If you have questions, want more information, or are considering selling, exchanging, or repositioning a San Diego apartment property, don’t hesitate to reach out. Whether you’re actively looking to sell or just want to understand your options, we’re happy to walk through it with you.
The information in this blog is for general informational purposes only and should not be your sole basis for financial or investment decisions. While ACI Apartments uses reliable sources for data and analysis, you should verify all information independently. This blog is not a comprehensive report on all changes to local, state, or federal laws affecting property owners and managers. Laws may have changed or been misinterpreted since publication. Always consult legal counsel or a licensed CPA before making decisions. ACI Apartments is not liable for actions taken based on this content. Information was gathered from CoStar and SDMLS.