Multifamily investors have felt real pressure over the past few years from rising operating costs. Operators we work with report 8–10% increases in expenses over the past year, and RealPage data shows a 24.4% jump in expenses between 2021 and 2024 — well above the pace of the three years prior.

At first glance, that should spell trouble for net income. Rent growth has essentially flattened, and turnover fears have kept many owners from pushing rents aggressively. Yet, many long-term operators still report being satisfied with their cash flow. Here’s why.

Imagine an apartment property producing $100,000 annually in gross income. Because the owner has held the asset for years, their expense ratio is only 35% ($35,000). Last year, rents rose 3% (+$3,000), while expenses rose 8% (+$2,800). Despite expenses climbing at nearly triple the rate of income, net operating income still increased by $200.

Not every situation is this favorable. Properties with expense ratios closer to 50% will feel the pinch more, and some owners have faced 10%+ cost growth. On the flip side, many still have units well below market rent, leaving room for higher income growth than expenses.

The key takeaway: while expense growth has cut into margins, total revenue remains high, and in many cases still outpaces expense growth. That dynamic has reduced distress in the market and led many owners to stay satisfied with current holdings rather than exit into other asset classes.

Looking Beyond Apartments: 1031 exchanges

For owners who are less comfortable with rising expenses and the day-to-day management intensity of apartments, another path exists. Through a 1031 exchange, some investors are repositioning into assets that require far less oversight while still producing comparable — or even stronger — cash flow.

Net-leased properties such as retail, medical offices or even car wash ground leases can shift much of the operating responsibility to the tenant. That means fewer headaches with rising utility bills, maintenance or staffing costs, while still collecting steady income.

Still, many long-time multifamily investors hesitate. Apartments have been their world for decades, and the idea of stepping into a new asset class can feel daunting. That hesitation is understandable. But for those seeking more passive income, reduced exposure to operating cost volatility and continued strong returns, exploring alternatives through a 1031 exchange may be a compelling strategy.

Wrapping up

Expense growth is real, and it’s reshaping the operating landscape. Yet many multifamily investors remain stable, supported by strong revenue and long-term ownership. For those ready to reduce management burdens while preserving or enhancing income, the 1031 exchange provides a potential path forward. The key is knowing your options — and having the right advisors to guide the transition.

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Blake Blackburn, is a Multi-Family Investment Advisor with the Visintainer Group in Fresno. Formed in 2018 and built on a foundation of investment real estate, the Visintainer Group is a client-first commercial real estate firm. The Group has executed over $935 million in transactions across the United States. Blake specializes in multi-family property acquisitions and dispositions for owners in the Central Valley market. He can be reached at 559-669-3686 or blake@visintainergroup.com.