From the CorePath archive. Originally published 2026-05-05. Market figures and references reflect the original publication date.
Is Your Central Valley Rental Still Making Money in 2026?
By Jose Monar | CorePath Real Estate | CCIM Candidate
I get this question more than almost any other right now. Not from buyers or sellers — but from landlords. People who own a duplex in Modesto, a four-plex in Merced, a small apartment building in Stockton. They're not panicking, but they're quietly wondering: "Jose, am I still coming out ahead on this thing?"
So let me give you the same honest answer I give everyone who asks me directly.
What Changed Since You Bought
If you purchased a rental property in Merced, Modesto, or Stockton between 2020 and 2022, the numbers probably made a lot of sense at the time. Rents were rising, interest rates were still historically low, and the Central Valley was picking up steam as Bay Area residents moved inland.
But 2026 is a different picture — and a lot of owners haven't sat down to actually run the numbers lately.
Here are the three biggest shifts I'm seeing on the ground right now.
Rents have flattened — but your expenses haven't.
In Merced, average rents grew just 0.71% over the past year. In Modesto, 0.41%. In Stockton, rents actually trended slightly downward in Q1 2026 with concessions starting to rise. Meanwhile, insurance premiums across California jumped 20–35% in 2024 alone. Property taxes, maintenance costs, and management fees have all continued climbing. When income stays flat and expenses go up, the gap has to come from somewhere — and right now, it's coming out of your cash flow.
Loans from 2021–22 are coming due.
If you financed your purchase during the low-rate era with a 3- or 5-year adjustable rate mortgage or a bridge loan, you may be staring down a refinance right now. The difference between a 3.5% rate and today's 7%+ rate on a $500,000 loan is roughly $1,400–$1,700 more per month in debt service. For a small multifamily property, that can turn a cash-flowing asset into a liability almost overnight.
In Stanislaus County alone, pre-foreclosure filings rose 18% year-over-year through Q1 2026. Most of those owners are not in crisis — but they are in a squeeze.
California's regulatory environment keeps expanding.
2026 brought new landlord requirements at the state level, including a mandate that property owners must provide a refrigerator upon tenant request. Rent control rules continue to expand. Compliance costs — from required disclosures to habitability standards — are adding up. For smaller landlords managing their own properties, staying current is practically a part-time job at this point.
Let's Run the Real Numbers
Let me walk through a realistic example for a 4-unit property in the Modesto area.
Typical 4-plex purchased in 2021:
- Purchase price: $600,000
- Loan amount (25% down): $450,000
- Interest rate at purchase: 3.75%
- Monthly mortgage (P&I): ~$2,085
Monthly income in 2021:
- 4 units × $1,400/month: $5,600/month
Monthly expenses in 2021:
- Mortgage: $2,085
- Insurance: $350
- Property taxes: $625
- Maintenance/repairs: $300
- Property management (8%): $448
- Vacancy allowance (5%): $280
- Total: ~$4,088/month
- Monthly cash flow: ~+$1,512
Now let's look at the same property today.
Monthly income in 2026:
- Rents up ~3% since 2021: 4 units × $1,440: $5,760/month
Monthly expenses in 2026:
- Mortgage (same loan, no refi): $2,085
- Insurance (+30%): $455
- Property taxes (increased assessment): $700
- Maintenance/repairs (inflation): $400
- Property management (8%): $461
- Vacancy allowance: $300
- Total: ~$4,401/month
- Monthly cash flow: ~+$1,359
Still positive — if you haven't had to refinance.
But here's where it gets serious.
If that loan matured and you refinanced today at 7.25%:
- New monthly mortgage on $450,000: ~$3,070
- That's $985 more per month
- Monthly cash flow drops to: ~+$374/month
And if you took out an interest-only or bridge loan and need to refinance the full balance — the math can go negative fast.
Where Owners Stand Right Now
Not everyone is in trouble. If you locked in a 30-year fixed rate, paid down significant equity, or own properties where rents are still below market — you're likely in a solid position and may be sitting on equity you haven't fully evaluated yet.
But if you used short-term financing in 2021–22, purchased near peak pricing with thin margins, haven't raised rents to current market rates, or have deferred maintenance piling up — you're facing real decisions right now. And honestly, the longer you wait, the fewer good options you have.
Your Three Options if the Numbers Are Tight
1. Hold and optimize. If your loan is stable and you have equity, the play may be to tighten operations — bring rents up to market, reduce vacancy, cut unnecessary costs, and stay the course. The Central Valley rental market isn't falling apart. If you can improve your net operating income by $300–$500 per month, that changes the picture significantly.
2. Refinance strategically. If your current loan is coming due, it's worth exploring all your options before taking the first rate you're quoted. Some owners have had success with HUD/FHA multifamily programs, portfolio lenders, or structured seller financing that reduces their monthly burden while they wait for rates to improve.
3. Sell into a motivated buyer market. Here's something that surprises a lot of people: even with prices softening — Merced is down about 9% year-over-year, Stanislaus down about 5% — there is a growing pool of cash buyers and value-add investors actively looking for properties right here in this market. Stockton and Modesto in particular are attracting Bay Area capital looking for yield that simply doesn't exist on the coast anymore. If your property is underperforming, selling now — before a refinance forces your hand — may put you in a much stronger position.
What I'm Seeing on the Ground
I work with property owners across Merced, Stanislaus, and San Joaquin counties every day. The conversations I have most often right now are with owners who are quietly wondering whether it's still worth holding — but haven't talked to anyone about it yet.
If that sounds familiar, it might be worth just running the numbers. Not to push you in any direction, but so you actually know where you stand.
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Jose Monar | CorePath Real Estate | REAL (415) 515-6553 jose@corepathre.com 3430 Tully Road Ste. 20 | Modesto, CA 95350
Jose Monar is a REALTOR® and CCIM Candidate serving buyers, sellers, investors, and property owners in Modesto, Merced, Stockton, and the Greater Central Valley. CorePath Real Estate | REAL. CA DRE #01715897.
Sources: Redfin County Market Data (Q1 2026), RentCafe/Yardi Matrix (April 2026), California Department of Finance E-1 Population Report (2026), Stanislaus County Housing Initiative, Investment Trends Today — Modesto Market Analysis (Q1 2026)