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Multifamily Loans in California to Maximize Your Net Worth

Multifamily loans are designed for investors looking to purchase or refinance properties with 5 or more residential units. In California, multifamily properties may also include mixed-use buildings, as long as at least 51% of the building's square footage is allocated for residential purposes. These loans provide investors with financing options tailored to support cash flow-generating properties, helping expand portfolios of larger residential complexes.

Investing in 5-32 unit apartment buildings or mixed-use properties offers another avenue to benefit from California’s rental market, especially in areas like Sacramento, San Diego, and Los Angeles.

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Sacramento’s Midtown neighborhood, known for its artistic and cultural diversity, provides solid rental demand from a mix of young professionals and students. San Diego’s East Village, an urban area close to the Gaslamp Quarter and major transit points has consistent demand for smaller apartment buildings with the added benefit of mixed-use spaces for retail or commercial tenants.

In Los Angeles, neighborhoods like Echo Park and Highland Park offer strong rental income potential for apartment and mixed-use properties particularly due to the area's steady growth in population and local economy. Investing in these neighborhoods with a DSCR loan can be a smart approach as it allows for rental income to support the loan. This makes multi-family and mixed-use properties accessible to California investors

Regular Multifamily Loans vs. DSCR Multifamily Loans

There are two main types of multifamily loans: Regular multifamily loans which consider the borrower’s income and financial history and DSCR (Debt Service Coverage Ratio) multifamily loans which qualify based on the property's income potential. Here’s a comparison:

Criteria Regular Multifamily Loan DSCR Multifamily Loan
Qualifying Basics Borrower’s income, credit, and financial history Property’s income (Debt Service Coverage Ratio)
Income Documentation W-2s, tax returns, financial statements Lease agreements, rental income projections
Eligible Properties 5–32 residential units 5–32 residential units, mixed-use if 51%+ residential
Maximum Loan to Value 75 LTV 65 to 70 LTV
Ideal Borrower Iraditional investors with verifiable income Investors with non-traditional income or self-employed

1.  A down payment of 15 percent requires credit scores above 740, DSC ratios above 1.20, 9-12 months of reserves and a loan not over $3,000,000

 


Scenario of a Multifamily Loan Transaction in California

Location: Oakland, CA
A real estate investor purchases a 12-unit apartment building in Oakland with an attached retail space on the ground floor. The building is 70% residential by square footage. The property generates a monthly rental income of $25,000.

With a DSCR loan, the investor can qualify based on the property’s income without needing to provide personal income documentation because the property’s DSCR meets the lender’s requirement. This lending program allows the investor to build their portfolio and avoid the lengthy verification process required for regular multifamily loans.


Disclosure: Minimum loan amount is $750,000 for 5+ unit multifamily properties. Loan programs are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.