For years, owning rental property in San Francisco was relatively straightforward from an investment perspective:
Hold the building. Collect the rent. Let San Francisco real estate appreciate.
That calculation is becoming more complicated.
Property taxes, repairs, utilities, labor, maintenance, financing costs, tenant regulations—and now property insurance—are taking an increasingly large bite out of landlord returns.
And insurance isn’t just getting more expensive.
For some property owners, finding acceptable coverage at all has become part of the challenge.
According to the Federal Reserve, the average inflation-adjusted property insurance cost for multifamily buildings increased from approximately $39 per unit per month in 2019 to $68 in 2024—an increase of more than 75%.
Federal Reserve research:
https://www.federalreserve.gov/econres/notes/feds-notes/rising-property-insurance-costs-and-pass-through-to-rents-for-apartment-buildings-20250919.html
For San Francisco landlords already dealing with rent control and rapidly rising operating expenses, insurance could become the expense that finally changes the economics of holding a rental property.
The question isn’t simply:
“Can I afford the insurance?”
The more important question is:
“Does this property still generate a good enough return on the equity I have tied up in it?”
Why Are Landlord Insurance Costs Increasing?
There isn’t one single cause.
Insurance pricing can be affected by:
- Replacement and construction costs
- Claims expenses
- Reinsurance costs
- Catastrophe exposure
- Inflation
- Building age and condition
- Electrical and plumbing systems
- Roof condition
- Loss history
- Coverage limits
- Deductibles
- Insurer appetite for California properties
California’s insurance market has experienced significant disruption in recent years.
The California Department of Insurance has responded with its Sustainable Insurance Strategy, designed to improve insurance availability and move more homeowners away from reliance on the California FAIR Plan.
More information:
https://www.insurance.ca.gov/01-consumers/180-climate-change/sustainable-insurance-strategy.Cfm
There have been signs of improving insurance availability in California.
That does not necessarily mean San Francisco landlords should expect premiums to return to what they were five or ten years ago.
For investment property owners, the important issue is what these higher expenses do to your property’s Net Operating Income.
Insurance Comes Directly Out of Your NOI
For rental property owners, gross rent can be misleading.
A building collecting $150,000 a year in rent isn’t necessarily producing $150,000—or even $100,000—in actual investment income.
You have to subtract the property’s operating expenses.
A simplified calculation is:
Gross Rental Income
− Operating Expenses
= Net Operating Income (NOI)
Common San Francisco rental-property expenses include:
- Property taxes
- Property insurance
- Water
- Garbage
- Repairs
- Maintenance
- Property management
- Common-area utilities
- Landscaping
- Pest control
- Compliance expenses
- Capital reserves
If your insurance expense increases by $5,000 a year and nothing else changes, your NOI has effectively fallen by $5,000.
And that’s before considering your mortgage.
Example: How Insurance Can Destroy Cash Flow
Consider a hypothetical San Francisco four-unit building.
Annual Rental Income
$12,000/month × 12 =
$144,000 per year
Now assume annual operating expenses are:
| Expense | Annual Cost |
|---|---|
| Property taxes | $20,000 |
| Insurance | $6,000 |
| Water & garbage | $6,000 |
| Repairs & maintenance | $8,000 |
| Other expenses | $4,000 |
| Total | $44,000 |
Estimated NOI:
$144,000 − $44,000 = $100,000
Now imagine the insurance premium rises from $6,000 to $10,000.
Total expenses rise to:
$48,000
NOI falls to:
$96,000
The landlord loses $4,000 of annual NOI without anything changing about the property itself.
No vacancy.
No rent reduction.
No new mortgage.
No major repair.
Just insurance.
Now combine that with higher plumbing costs, roofing expenses, utilities, property management, pest control and general maintenance.
That seemingly strong rental property can start producing a much weaker return.
The Problem Is Even Bigger for Rent-Controlled SF Properties
This is where San Francisco landlords can be particularly vulnerable.
Expenses can increase rapidly.
Rents often cannot.
Many San Francisco rental units are subject to local rent-control regulations that limit the amount landlords can increase rent annually.
If you’re unsure how San Francisco rent control affects your property, read:
San Francisco Rent Control Explained — 2026 Guide
https://christopherleesf.com/san-francisco-rent-control-explained-2026-guide/
This creates an uncomfortable mismatch:
Your expenses can rise at market speed while your income may be restricted.
Insurance goes up.
Water goes up.
Garbage goes up.
A plumber charges more.
Contractors charge more.
Materials cost more.
Property taxes may rise.
But a landlord with a long-term rent-controlled tenant may have very limited ability to increase revenue enough to compensate.
Over many years, that gap can become enormous.
Use the Rent Estimator Before Assuming Your Property Isn’t Performing
One of the first things I would determine is how your existing rents compare with today’s rental market.
San Francisco Rent Estimator
https://rent.christopherleesf.com
Enter your property information and estimate what the unit might rent for in today’s market.
That doesn’t mean you can automatically increase an existing tenant’s rent to market level.
You may not be able to.
But knowing the difference between actual rent and potential market rent is extremely important when evaluating:
- Current investment performance
- Future upside
- Property value
- Tenant strategy
- Refinancing
- Selling
- Whether holding the property still makes sense
The Number Most Landlords Don’t Calculate: Return on Equity
This may be the biggest blind spot I see among long-time San Francisco property owners.
Suppose you bought a building decades ago for $500,000.
Today it’s worth:
$2,000,000
And suppose you only owe:
$500,000
You now have approximately:
$1,500,000 of equity.
If the property produces $60,000 annually after operating expenses, you may think:
“I’m making $60,000 a year. That’s pretty good.”
But there’s another way to look at it.
You have $1.5 million of equity producing $60,000.
Your approximate return on equity is:
$60,000 ÷ $1,500,000 = 4%
That’s before considering debt service, income taxes and large future capital expenses.
The property could certainly appreciate.
Your financing could be excellent.
There may be major tax benefits to holding.
There may be estate-planning reasons to keep it.
But you should still know the number.
Calculate What Your SF Property Is Worth Today
Before you calculate your return on equity, you need a reasonable estimate of today’s property value.
Online estimates should only be considered a starting point.
San Francisco properties can vary significantly based on:
- Neighborhood
- Block
- Number of units
- Tenant status
- Current rents
- Vacancies
- Condition
- Parking
- Views
- Lot size
- Expansion potential
- Floor plans
- Buyer demand
Two four-unit buildings a few blocks apart can have dramatically different values.
SF Landlord Return-on-Equity Calculator
You can also calculate this manually.
Step 1: Estimate Current Property Value
Example:
$2,000,000
Step 2: Subtract Your Mortgage
Mortgage balance:
$700,000
Estimated equity:
$1,300,000
Step 3: Calculate Annual NOI
Annual rental income:
$130,000
Annual operating expenses:
$50,000
Estimated NOI:
$80,000
Step 4: Calculate Return on Equity
$80,000 ÷ $1,300,000 = 6.15%
You now have a much better question to ask:
Is approximately 6.15% on my $1.3 million of equity attractive enough to justify continuing to own this property?
Maybe it is.
Maybe it isn’t.
But now you’re making the decision using numbers instead of habit.
Rising Insurance Can Potentially Affect Property Value Too
Investors frequently evaluate multifamily property using its Net Operating Income and capitalization rate.
A simplified valuation formula is:
Property Value = NOI ÷ Cap Rate
Suppose a building generates:
$100,000 NOI
At a hypothetical 5% capitalization rate:
$100,000 ÷ 0.05 = $2,000,000
Now imagine insurance and other operating expenses increase enough that NOI falls to:
$90,000
At the same hypothetical cap rate:
$90,000 ÷ 0.05 = $1,800,000
That’s a theoretical:
$200,000 difference.
Real San Francisco real estate doesn’t trade according to a single formula.
Buyers also consider:
- Comparable sales
- Price per square foot
- Price per unit
- GRM
- Neighborhood
- Tenant profile
- Vacant units
- Market rents
- Owner-user potential
- Development potential
- Financing
- Building condition
But the principle remains:
Lower income can reduce what an investment buyer is willing to pay.
Insurance Isn’t the Only Expense Squeezing SF Landlords
This is the bigger issue.
Insurance isn’t increasing in isolation.
Landlords may also face higher:
Property taxes
Water and garbage
Contractor costs
Plumbing
Electrical
Roofing
Appliances
Property management
Legal and compliance expenses
Financing costs
Capital improvements
When several of those expenses increase together, cash flow gets compressed quickly.
That’s one reason I’ve seen more San Francisco landlords start asking whether they should continue holding their properties.
Read:
Why More SF Landlords Are Becoming Sellers
https://christopherleesf.com/why-more-sf-landlords-are-becoming-sellers
Should You Hold, Refinance, or Sell?
Rising insurance does not automatically mean you should sell.
There are three primary options worth evaluating.
Option 1: Hold
Holding may make sense if you have:
- Strong cash flow
- A low mortgage rate
- Low property taxes
- Good tenants
- Strong rents
- Significant future appreciation potential
- Future vacancy upside
- Little management burden
Option 2: Refinance
Refinancing may make sense if it allows you to:
- Improve cash flow
- Access equity
- Consolidate debt
- Fund improvements
- Purchase another investment property
However, refinancing should be evaluated carefully because today’s loan structure may be less attractive than an older low-rate mortgage.
Option 3: Sell
Selling may make sense if:
- Your return on equity has become unattractive
- Insurance and expenses keep increasing
- You have significant deferred maintenance
- Management is becoming burdensome
- Your tenant situation limits income
- You want to diversify your equity
- Another investment offers better potential
- You simply don’t want to be a landlord anymore
For a deeper comparison:
Hold, Refinance, or Sell: What Makes the Most Sense Today?
https://christopherleesf.com/hold-refinance-or-sell-san-francisco/
What If Your Property Has Tenants?
This can dramatically change the analysis.
A San Francisco rental property’s value can depend heavily on:
- Existing rents
- Lease terms
- Rent-control status
- Tenant history
- Number of protected tenants
- Vacant units
- Owner-occupancy potential
- Buyout possibilities
- Property type
- Buyer profile
A four-unit building with four below-market tenants may attract an entirely different buyer pool than the same building delivered partially vacant.
If you’re considering selling an occupied property, read:
How to Sell a Tenant-Occupied Property in San Francisco
https://christopherleesf.com/sell-tenant-occupied-property-san-francisco-2026/
What About a Tenant Buyout?
Some owners immediately assume:
“I’ll just pay the tenant to leave before I sell.”
That isn’t always the best financial decision.
A tenant buyout needs to be evaluated based on the potential increase in property value compared with:
- The buyout amount
- Attorney fees
- Carrying costs
- Execution risk
- Time
- Tenant willingness
- Applicable regulations
Sometimes selling occupied produces the better net result.
Sometimes creating vacancy can dramatically increase value.
Before starting that conversation, understand how San Francisco tenant buyouts work:
Tenant Buyouts in San Francisco Explained
https://christopherleesf.com/tenant-buyouts-san-francisco-explained/
Landlords should consult appropriate legal counsel before pursuing a tenant buyout or eviction strategy.
The Question Isn’t What Your Property Sells For
It’s:
What Do You Actually Keep?
This is another number landlords frequently overlook.
Imagine your property could sell for:
$2,000,000
That does not mean $2 million goes into your bank account.
Your proceeds may be reduced by:
- Mortgage payoff
- Brokerage compensation
- San Francisco transfer tax
- Escrow costs
- Title expenses
- Repairs
- Staging
- Seller credits
- Tenant-related expenses
- Capital gains taxes
- Depreciation recapture
So before deciding whether selling makes sense, calculate the estimated proceeds.
Use My San Francisco Seller Net Proceeds Calculator
Seller Net Proceeds Calculator
https://sellernet.christopherleesf.com
You can estimate:
- Expected sale price
- Mortgage payoff
- Selling expenses
- Transfer tax
- Repairs
- Other transaction costs
- Approximate cash remaining after the sale
For a deeper explanation, read:
How Much Would You Net If You Sold Your Rental Property?
https://christopherleesf.com/how-much-net-selling-rental-property-san-francisco/
The number that matters isn’t your sale price.
It’s what you actually walk away with.
Example: Should a $2 Million SF Landlord Keep Holding?
Consider this hypothetical scenario:
Property value:
$2,000,000
Mortgage:
$600,000
Estimated equity:
$1,400,000
Annual gross rent:
$120,000
Operating expenses:
$50,000
NOI:
$70,000
Return on equity before debt service and taxes:
5%
Now assume insurance, maintenance and utilities increase another $10,000 over several years.
NOI becomes:
$60,000
Return on equity becomes approximately:
4.3%
Now the owner has approximately $1.4 million tied up in an investment generating $60,000 of NOI.
That doesn’t automatically make it a bad investment.
San Francisco appreciation could make holding very profitable.
There may be future rent upside.
The mortgage may be favorable.
But now there is a legitimate investment question:
Would that $1.4 million of equity work harder somewhere else?
That’s the analysis every landlord should be doing.
Don’t Make Decisions Based on What You Paid 20 Years Ago
This is one of the most important concepts for long-time property owners.
Imagine you purchased an SF building for:
$600,000
It’s worth:
$2,200,000 today.
It can be tempting to think:
“I bought it for $600,000. I’m doing great.”
And you probably are.
But your original purchase price isn’t the only number that matters anymore.
Today, you potentially have approximately $2.2 million of property that could be:
- Held
- Refinanced
- Sold
- Exchanged
- Repositioned
- Passed to heirs
The relevant question is:
What produces the best risk-adjusted outcome from today forward?
Your original purchase price is history.
Your current equity is capital.
When Selling May Be the Wrong Move
I don’t believe every landlord should sell.
In fact, selling may be a mistake if you have:
- Extremely low property taxes
- Excellent long-term financing
- Strong market rents
- Minimal maintenance
- Significant appreciation potential
- Future development potential
- A compelling estate strategy
- Large taxable gains
- A property that would be difficult to replace
Selling appreciated investment property can also create substantial tax consequences.
Capital gains, depreciation recapture and California taxes may significantly affect your actual result.
Speak with a qualified CPA or tax attorney before making tax decisions.
But Waiting Has a Cost Too
Landlords sometimes analyze the tax consequences of selling but ignore the financial consequences of not selling.
Those can include:
- Years of weak cash flow
- Increasing insurance premiums
- Major capital expenditures
- Roof replacement
- Foundation work
- Plumbing
- Electrical upgrades
- Tenant disputes
- Vacancy loss
- Regulatory changes
- Lost investment opportunities
- Lower future buyer demand
There are risks on both sides.
That’s why the right decision comes from comparing the numbers.
The Four Numbers Every SF Landlord Should Know in 2026
If you own a San Francisco rental property, calculate these four numbers:
1. Current Market Value
What could your property realistically sell for today?
Home Value Calculator:
2. Current Market Rent
How does your existing rent compare with today’s market?
Rent Estimator:
https://rent.christopherleesf.com
3. Current Return on Equity
Calculate:
Annual NOI ÷ Current Equity
4. Estimated Net Proceeds
What would actually be left if you sold?
Seller Net Proceeds Calculator:
https://sellernet.christopherleesf.com
Once you know all four, the hold-versus-sell decision becomes substantially clearer.
Rising Insurance Costs Are a Warning to Review Your Numbers
California’s insurance market is still evolving.
The California Department of Insurance reported in 2026 that insurers participating in its reforms were making additional commitments to expand coverage, while FAIR Plan growth had begun slowing—early signs that availability may be improving.
But stabilization of the insurance market doesn’t erase the higher cost structure landlords have already absorbed.
And according to Federal Reserve research, multifamily property insurance costs increased by more than 75% in real terms between 2019 and 2024.
For landlords, that should be a warning:
Don’t assume yesterday’s investment strategy still works with today’s expenses.
Run the numbers again.
Thinking About Selling Your San Francisco Rental Property?
You don’t need to sell simply because insurance went up.
But you do need to know what continuing to hold is costing you.
If you’re sitting on substantial equity while insurance, maintenance, taxes and other expenses continue eating into your return, there may eventually be a point where the economics change.
And by the time that becomes obvious to everyone else, your best window may already be gone.
Before your next major insurance increase, expensive repair, tenant issue, or market shift forces the decision for you, let’s determine:
- What your property is worth today
- What it’s worth occupied
- What it could potentially be worth vacant
- Your current return on equity
- Your estimated net proceeds
- Whether holding, refinancing or selling makes the most financial sense
- How tenant status affects your exit strategy
Christopher Lee
Top Realtor in San Francisco
Call or text: 650-489-6036
Book a Private Property Strategy Consultation: HERE
You don’t have to sell.
But waiting until rising expenses, a major repair, tenant problem, insurance issue, or weaker market forces you to sell can dramatically reduce your options.
The owners with the most leverage are usually the ones who evaluate their exit strategy before they need one.
Find out what your property is worth—and what you could actually walk away with—while the decision is still yours.