I Inherited Commercial Real Estate in California—Now What?

Inheriting commercial real estate sounds like a win.

And it can be.

But what most people don’t realize is this:you didn’t just inherit an asset—you inherited a business.

Tenants, expenses, legal obligations, tax implications… it all comes with it.

So if you’re in this position, take a breath. You don’t need to rush—but you do need to get organized.

Here’s where to start.

Step 1: Understand What You Actually Own

Before making any decisions, get clear on the basics:

• What type of property is it? (multifamily, retail, office, etc.)

• How many units or tenants are there?

• What condition is the property in?

• Who is managing it (if anyone)?

And most importantly:

• What income does it produce?

• What are the actual expenses?

Not what you’ve been told.

What the numbers actually show.

If you don’t have documentation, that’s your first red flag—and your first task.

Step 2: Gather the Right Documents

You’ll want to track down:

• Rent roll

• Leases

• Operating statements

• Property tax bills

• Insurance policies

• Any loan documents

This is your foundation.

Without it, you’re guessing—and that’s where people make expensive mistakes.

Step 3: Understand the Tax Implications

This is where California gets… nuanced.

The good news:

You likely received a step-up in basis, meaning the property’s tax basis resets to current market value at the time of inheritance.

That can significantly reduce capital gains if you sell.

But don’t stop there.

You also need to understand:

• Property tax reassessment rules under Proposition 13 and Proposition 19

• Depreciation going forward

• Income tax on rental earnings

This is not DIY territory.

A CPA who understands real estate is critical here.

Step 4: Decide What Role You Want to Play

This is the question most people skip.

Do you want to:

• Actively manage the property?

• Be a passive owner with a property manager?

• Sell and redeploy the capital?

There’s no right answer.

But there is a wrong one:

Drifting into ownership without a plan.

Because that’s how properties become underperforming—and stressful.

Step 5: Evaluate the Property as an Investment (Not a Memory)

This part can be tough.

Especially if the property has been in your family for years.

But you need to ask:

• Is this property performing well?

• Is it being managed properly?

• Are rents at market?

• Are expenses under control?

And most importantly:

Would you buy this property today at its current value?

If the answer is no, that’s worth paying attention to.

Step 6: Understand Your Options

Once you have clarity, you typically have three paths:

1. Hold and Improve

• Increase rents (where legally allowed)

• Clean up operations

• Improve the asset

Best for: long-term wealth building

2. Stabilize and Delegate

• Hire professional management

• Keep the asset but reduce your involvement

Best for: passive income with less stress

3. Sell (Strategically)

• Take advantage of step-up in basis

• Potentially defer taxes through a 1031 exchange

Best for: repositioning into a better asset or freeing up capital

Step 7: Build the Right Team

You don’t need to figure this out alone.

At minimum, you should have:

• A commercial real estate broker

• A CPA with real estate expertise

• A property manager (if holding)

• Possibly an estate or real estate attorney

The right team helps you:

• Avoid costly mistakes

• See options you didn’t know you had

• Move with confidence instead of guesswork

A California Reality Check

Owning commercial real estate in California comes with added layers:

• Tenant protections

• Rent regulations (especially for multifamily)

• High operating costs

• Political and legal complexity

This doesn’t make it bad.

It just means:you need to be more intentional than in other markets.

Final Thought

Inheriting commercial real estate is an opportunity.

But it’s also a responsibility.

If you take the time to:

• Understand the asset

• Get clear on your goals

• Build the right team

You can turn that inheritance into something meaningful—not just something you manage, but something you grow.

If you’re in this position, the most important first step is getting a clear understanding of how the property is actually performing today—and what it’s worth in the current market.

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