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 (Live in One Unit):

• 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 (Net Operating Income)
• 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 Multifamily 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 1 (you live here): $0
• Unit 2 (rented): $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 Requirements

Conventional/FHA: Lender counts 75% of market rent on rented units toward your income.

Example:

• Your income: $80,000/year
• Unit 2 market rent: $2,200/month
• Lender credits: $2,200 × 75% = $1,650/month ($19,800/year)
• Effective qualifying income: $99,800

Credit Score

• FHA: 580 minimum (620 for best rates)
• Conventional: 620 minimum
• DSCR (investment): 660-680 minimum

Reserves

Owner-occupied: 2-6 months reserves

Investment: 6-12 months reserves (per property)

California Markets for Multifamily

Best markets (cash flow):

• Inland Empire (Riverside, San Bernardino)
• Central Valley (Fresno, Bakersfield, Stockton)
• Sacramento area
• Smaller coastal cities (Ventura, parts of San Diego)

Toughest markets (appreciation, but low cash flow):

• San Francisco
• Los Angeles (west side)
• Orange County coastal
• Silicon Valley

Multifamily vs. Single-Family Rental

Factor	Multifamily	Single-Family
Down payment (investment)	25%	15%
Down payment (house hack)	3.5-5%	3.5-5%
Cash flow	Higher	Lower
Vacancy risk	Spread across units	100% if vacant
Management intensity	Higher	Lower
Appreciation	Moderate	Higher in CA

The 5+ Unit Commercial Loan

Different rules:

• Qualified based on property's NOI, not your income
• Shorter amortization (25 years vs. 30)
• Balloon payments (refinance in 5-10 years)
• Requires experience (some lenders want 2+ years landlord history)

Pros:

• Can buy larger properties ($2M-$10M+)
• Scale faster

Cons:

• Bigger down payments ($200K-$500K+)
• More complexity
• Higher risk

Tax Benefits

Depreciation: Deduct 1/27.5 of building value annually

Interest deduction: Fully deductible on Schedule E

Cost segregation: Accelerate depreciation on certain components (advanced strategy)

1031 exchanges: Defer capital gains when selling

Learn about 1031 exchanges

Common Mistakes

1. Overestimating rents
Use actual market comps, not Zillow estimates.

2. Underestimating expenses
Budget for vacancies, maintenance, property management (if used), capex.

3. Buying in rent-controlled markets without understanding rules
LA, SF, Oakland have strict rent control. Know the laws.

4. Not screening tenants properly
Bad tenants = nightmare. Use background checks, credit reports, income verification.

5. Violating the 12-month occupancy requirement
FHA/conventional require you to live there 12 months. Don't cheat — it's mortgage fraud.

FAQ

Q: Can I buy a triplex with 5% down?
A: Yes, if you live in one unit (owner-occupied financing).

Q: What if one unit is vacant when I buy?
A: Lender uses market rent appraisal to estimate income (75% of market rent).

Q: Can I Airbnb one unit?
A: Check local laws. Most owner-occupied lenders prohibit short-term rentals during the first 12 months.

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

Q: How do I find multifamily deals?
A: MLS, off-market wholesalers, direct mail to owners, commercial brokers (for 5+ units).

Q: Can I 1031 exchange into a multifamily?
A: Yes, as long as it's held for investment (not immediate owner-occupancy).

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