Buying a Multifamily Property in California: Financing Guide

Multifamily properties are the fastest way to build wealth through real estate in California.

Buy a duplex with 5% down. Live in one unit. Rent the other. Your tenant pays most (or all) of your mortgage.

I'm Bill McCoy, CA mortgage broker (DRE #01212512). I've financed dozens of California multifamily deals. Here's how to do it.

The 2-4 Unit "House Hack" Strategy

The loophole: If you live in one unit, it's owner-occupied financing -- even though it's an investment property.

Benefits:

• 3.5% down (FHA) or 5% down (conventional)
• Lower interest rates (owner-occupied rates)
• No landlord experience required

Requirements:

• Must live there for at least 12 months
• Property can't exceed 4 units

After 12 months: Move out, rent all units, buy another multifamily and repeat.

See FHA vs conventional comparison

Broker's Tip: This is how I started. Bought a duplex in 2012 with FHA 3.5% down ($15K), lived in one unit, rented the other for $1,400/month. My payment was $1,600. I paid $200/month to live in California. After 2 years, moved out, rented my unit for $1,500. Property cash-flowed $300/month while I lived elsewhere.

Financing Options by Property Size

2-4 Units (Small Multifamily)

Owner-Occupied: FHA 3.5% down / Conventional 5% down / VA 0% down (if veteran)

Investment (Don't Live There): Conventional 25% down / DSCR 20-25% down

5+ Units (Commercial Multifamily)

Commercial Loans: 25-30% down, based on property's NOI, shorter terms (5-10 year balloons), higher rates (7.5-9%)

DSCR Loans: 25-30% down, based on DSCR ratio (1.25+ typically), 30-year fixed available

Real Numbers: California Duplex Purchase

Example: Duplex in Riverside

• Purchase price: $650,000
• Down payment (5% conventional): $32,500
• Loan: $617,500 at 6.75%
• Monthly payment (PITI): $4,350

Rental income: Unit 2 rented at $2,200

Your housing cost: $4,350 - $2,200 = $2,150/month

vs. renting a similar unit: $2,800/month. You save $650/month while building equity.

How to Qualify

Income: Lender counts 75% of market rent on rented units toward your income. Example: $80K income + $2,200 rent x 75% = $99,800 effective qualifying income.

Credit Score: FHA 580 min (620 may improve pricing) / Conventional 620 min / DSCR 660-680 min

Reserves: Owner-occupied 2-6 months / Investment 6-12 months per property

California Markets for Multifamily

Best for cash flow: Inland Empire, Central Valley, Sacramento area, smaller coastal cities (Ventura, parts of San Diego)

Appreciation but low cash flow: San Francisco, LA west side, OC coastal, Silicon Valley

Common Mistakes

1. Overestimating rents -- use actual market comps, not Zillow estimates
2. Underestimating expenses -- budget for vacancies, maintenance, property management, capex
3. Buying in rent-controlled markets without knowing rules -- LA, SF, Oakland have strict rent control
4. Not screening tenants properly -- bad tenants = nightmare
5. Violating the 12-month occupancy requirement -- don't cheat, it's mortgage fraud

FAQ

Can I buy a triplex with 5% down? Yes, if you live in one unit.

What if one unit is vacant? Lender uses market rent appraisal (75% of market rent).

Can I use a VA loan on a fourplex? Yes -- 0% down, live in one unit, rent the other 3.

Can I 1031 exchange into a multifamily? Yes, as long as it's held for investment.

Get Multifamily Financing

Whether you're house-hacking your first duplex or buying a 20-unit building, we can help.

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Better Offers Inc | CA DRE #01212512