These areas known for their proximity to larger hubs and a dynamic cultural scenes tend to have high rental demand. The property types range from single-family homes, condos, or duplexes and triplexes. Oakland’s Temescal neighborhood combines vibrant local businesses with an appealing mix of classic and modern homes. Long Beach’s Belmont Heights and Shores area also sees strong demand appealing to beachgoers and tourists alike. Inglewood benefits from the recent sports and entertainment developments and has positioned itself as a high-demand rental area. It is ideal for single-family and multi-family investments.
Why Choose a DSCR Loan?
DSCR loans are popular among real estate investors in California for several key reasons:
- Qualify Based on Rental Income: Investors qualify based on the property’s cash flow rather than personal income which benefits those with variable or non-traditional incomes.
- Build Your Portfolio Faster: DSCR loans simplify the financing process enabling investors to scale their portfolios without traditional income documentation.
- Allows Short-Term Rentals and ADUs: Ideal for properties used as short-term rentals or those with accessory dwelling units (ADUs) that add rental value.
- Loans up to $4 million: Designed for medium to high-cost real estate markets like California where property values are much higher that other states.
- Who's Eligible?: Anyone with past 2 years of mortgage or rental history isn't over 30 days late & has 660 or higher credit scores. Experienced investors, first-time investors and foreign nationals.
Available DSCR Programs
DSCR over 1.0
- – Rents cover the full mortgage payment (P.I.T.I)
- – DSCR > 1.20 offers the best interest rates
DSCR under 1.0
- – Rental income does not cover the mortgage payment
- – Allowed with 660 & above credit scores
Overall, California real estate is not a market to expect a cash flowing property. Most investors buy a property for equity appreciation instead of cash-flow. The results have been beneficial for most California investors as the gains in equity far surpass any mortgage payment shortfall.
Example of a DSCR Loan Transaction in California
Location: Los Angeles, CA
An investor in Los Angeles purchased a two-unit rental property in Silver Lake valued at $1.6 million. The property generates monthly rental income of $5,600.
With a DSCR loan the investor could qualify for financing by demonstrating that the property’s income is less than the monthly mortgage payment or covers it. We offer both types of DSCR loans. The DSCR is calculated by dividing the net operating income by the debt payment. Use our DSCR calculator.
In this case, the property’s income comfortably doesn't meet the lender’s DSCR 1.0 requirement which means the investor can still secure a loan using "no ratios". The key here is the investor avoided traditional income verification because it would not qualify to close the deal. The investor is likeley banking on property appreciation instead of cash flow.
Other areas and average rental income for investors
Oakland (Temescal, West Oakland)
Purchase Prices: $700,000 to $1.2 million for single-family homes and duplexes.
Typical Monthly Rent: $3,000 to $4,200 for a two-bedroom unit.
Triplex/Fourplex Rents: Rents range from $2,500 to $3,800 per two-bedroom unit providing strong cash flow potential.
Long Beach (Belmont Shore, Alamitos Beach)
Purchase Prices: $750,000 to $1.3 million for single-family homes and duplexes near the coast and downtown Long Beach.
Typical Monthly Rent: $2,800 to $3,500 for a two-bedroom unit.
Triplex/Fourplex Rents: $2,400 to $3,200 per unit making it suitable for both short- and long-term rentals.
Inglewood (Morningside Park, Downtown Inglewood)
Purchase Price range: $650,000 to $1 million for single-family homes and duplexes.
Typical Monthly Rent: $2,500 to $3,300 for a two-bedroom unit.
Triplex/Fourplex Rents: Two-bedroom units rent for $2,200 to $3,000 per month
ADU and Short-Term Rental Laws in California
Los Angeles
Los Angeles supports the use of ADUs as a key strategy to combat the housing crisis, offering opportunities for property owners to increase rental income and improve DSCR loan eligibility.
However, short-term rentals are tightly regulated by L.A. County STR ordinance in March 2024. Only primary residences qualify for short-term rental use.
Orange County
Orange County permits ADUs, with city-specific regulations varying across the region. For example, Anaheim allows short-term rentals with a permit, but many other cities in the county, like Newport Beach and Huntington Beach heavily restrict or outright ban them.
San Diego
San Diego provides favorable policies for both ADUs and short-term rentals. While newly constructed ADUs are restricted to long-term rental use. Properties with older ADUs may qualify for short-term rentals under specific conditions[2] in San Diego County.
San Francisco
San Francisco enforces some of the most stringent short-term rental regulations in California. Properties must be the owner’s primary residence, occupied for at least 275 days annually, and registered with the city.
ADUs are generally excluded from short-term rental eligibility unless grandfathered under older policies.
The Takeaway: Investors should carefully research municipal guidelines to optimize their strategies for rental income and DSCR loan qualifications. As you can see Understanding these restrictions or regulations is critical for investors planning to generate rental income.