From Good to Great: Elevating Your Equity in 2026

Jan 23

Owning income property in the Bay Area is already a win. You took the risk, stayed through cycles, and built meaningful equity. In 2026, the question for many long‑time owners is not “Did this work?” but “Could this equity be working even better for the next chapter of my life?”

For a lot of 1‑plus‑property owners, especially those who bought 5+ years ago, values have surged while cash flow has lagged behind rising expenses. This article is about exploring whether a good investment can be upgraded to a great one by realigning where and how your equity is invested.

The 2026 backdrop: a market that rewards thoughtful moves

Housing economists describe 2026 as a “reset” year: slower, more sustainable price growth, gradually improving affordability, and more normal transaction volumes as rates ease off recent highs. It’s not a hot boil, but it’s also not a freeze.

On the 1031 side, national data through 2025* shows:

Slightly fewer total exchanges, but
Larger average deal sizes and more selective, strategic repositioning.

In plain terms, serious investors are not chasing every opportunity—they’re using tools like 1031 exchanges to reshape portfolios for long‑term income, diversification, and lifestyle fit.

When a “good” property may no longer be “great”

A property that was a slam‑dunk in 2008 may be just “OK” in 2026 once you compare today’s equity to today’s net income. A few signals that it might be time to reassess:

You’ve owned the property 5–20+ years and the value has grown far faster than the rent.
After taxes, maintenance, insurance, and vacancies, the annual net income looks modest next to the current equity.
Most of your motivation to hold is avoiding a large tax bill rather than excitement about the property’s future potential.

Think of it like a team member who’s been with you forever: loyal, dependable—but maybe ready for a promotion into a role where their strengths (your equity) can shine.

How a 1031 exchange can help you “elevate,” not just exit

A 1031 exchange lets you sell an investment or business‑use property and defer capital gains and depreciation‑recapture taxes by reinvesting into one or more “like‑kind” replacement properties that follow strict IRS rules and timelines. The goal isn’t just tax deferral; it’s giving your equity a chance to move into a better assignment.

Current trends and expert commentary highlight that:

Investors are using exchanges to move into higher‑quality, more income‑focused assets, often trading one property into several doors or more resilient sectors.
2026 is expected to be a constructive year for exchanges as rates moderate and pricing in many markets normalizes, creating an environment for more disciplined acquisitions.

Strategically, a 1031 can:

Increase cash flow by shifting into markets or property types with stronger rent‑to‑value ratios.
Reduce hands‑on management by exchanging into newer properties or more passive vehicles like DSTs.
Diversify risk by spreading equity across locations, tenant mixes, or asset classes instead of keeping it all in one building.

A story of “good to great”: one owner’s pivot

Consider an owner we’ll call David. He bought a small income property years ago for around $700,000. Today, it’s worth about $1.8 million. On paper, that looks fantastic. But after rising insurance, property taxes, and ongoing repairs, his net income is roughly $30,000 a year—about a 1.7% return on his equity.

David realizes:

The property has been good to him.
But his goals have changed: he wants more predictable income, less day‑to‑day management, and better diversification as he thinks about retirement.

Working with his advisory team, David explores a 1031 exchange. In line with recent trends—fewer but larger, more intentional exchanges—he considers selling his one highly appreciated property and reinvesting into:

Several newer, lower‑maintenance properties in growth markets with stronger cash flow.
A combination of direct ownership and a passive DST interest to reduce his management load.

The result isn’t “starting over.” It’s using the equity he already built to design a portfolio that fits who he is now, not who he was when he first bought the property.

Why 2026 is a natural “check‑in” point

Several factors make 2026 a logical year to evaluate your holdings:

The market is stable enough to make thoughtful moves, with moderating rates and a more balanced environment for buyers and sellers.
The 1031 landscape is expected to remain intact, with professional guidance emphasizing disciplined exchanges into higher‑quality assets rather than speculation.
Broader tax planning strategies—like pairing 1031 exchanges with depreciation planning or other real‑estate‑focused tax tools—are front and center in current 2026 tax discussions.

You don’t have to act just because the calendar turned to 2026. But if you have significant unrealized gains and modest cash flow, this is a smart year to at least measure whether your equity structure still matches your long‑term plans.

A quick self‑assessment: is it time to explore “great”?

Here’s a simple framework you can use:

Step 1: Estimate today’s value of your property.
Step 2: Subtract your loan balance to find your equity.
Step 3: Calculate your annual net income after all expenses.
Step 4: Divide net income by equity to get an approximate return on equity.

Then ask yourself:

Does this return feel appropriate for the risk, time, and stress you carry as a landlord?
If you could reposition that same equity into a structure that better supports your income, lifestyle, or succession goals, would that be worth a conversation?

Sometimes the most powerful move isn’t buying more; it’s reshaping what you already own.

Important disclaimer (and an invitation)

This article is for educational purposes only and is not tax, legal, or financial advice. Any decision to sell, exchange, or restructure your real estate should be made with your CPA, attorney, and a qualified intermediary who understands your full situation.

If you’re curious whether your properties are positioned for “good” or “great” in this 2026 environment, the logical next step is a personalized portfolio check‑in: a clear valuation, a simple return‑on‑equity snapshot, and an outline of possible paths forward—including staying exactly where you are if that’s truly the best fit. Contact me for a conversation with our team about your portfolio.

*Ref: IPX1031 https://www.ipx1031.com/insight-blog/; https://www.nar.realtor/commercial/create/tax-smart-strategies-for-real-estate-investors-in-2026. Image credit to: https://unsplash.com/@phil_gauthier