Investors searching for multifamily property financing in Los Angeles quickly learn that the loan depends on the number of units. Properties with one to four units are financed like homes; five or more units are financed as commercial real estate.
Two to four units: residential loans
- Conventional loans. Available for duplexes to fourplexes, with down payments that vary for owner-occupied and investment purchases.
- FHA. If you will live in one unit, FHA allows as little as 3.5% down for qualified buyers on up to four units, which is the classic house-hacking strategy.
- VA. Eligible veterans can buy up to four units if they live in one.
- DSCR loans. For investors who do not occupy, a DSCR loan qualifies based on the property’s rent.
Five or more units: commercial loans
- Bank and portfolio loans. Local banks and credit unions lend on apartment buildings, often with shorter fixed periods and a balloon or adjustment.
- Agency loans (Fannie Mae and Freddie Mac). Offer competitive long-term rates for stabilized properties of five or more units, with more paperwork.
- Bridge or transitional loans. Short-term financing for buildings that need renovation or lease-up.
How lenders underwrite
For larger properties, lenders focus on the property’s net operating income (NOI) rather than only your personal income. They look at the debt service coverage ratio, commonly in the range of 1.20 to 1.25 or higher, along with loan-to-value, which is often around 65% to 80%. They will also review rent rolls, operating expenses, vacancy and the condition of the building.
Los Angeles factors
- Many older buildings are covered by the Rent Stabilization Ordinance, which limits rent increases and can affect value and income.
- Seismic and building-code requirements, especially for older soft-story buildings.
- Property tax reassessment on purchase under Proposition 13.
Steps to get started
- Decide whether you will live in a unit.
- Run the numbers using realistic rents, vacancy and expenses.
- Get prequalified for the right loan type.
- Review rent rolls, leases and inspections before you commit.
Frequently asked questions
Can I buy a fourplex with a regular mortgage?
Yes, up to four units can be financed with residential loans, often with better terms if you will live in one unit.
What DSCR do lenders want on apartments?
Often around 1.20 to 1.25 or higher, depending on the lender and property.
How much down payment is needed for multifamily?
It ranges from a few percent on owner-occupied small properties to 20% to 35% on investment and larger commercial loans.
Looking at a duplex, fourplex or apartment building? Let’s structure the financing before you offer.
This article is general information, not a loan commitment, legal or tax advice. Programs, rates and rules change, so confirm current details with a licensed professional before you decide.
Written by the Terranova Real Estate Group team · DRE 01785581 · NMLS 1091484 · Meet Griselda Espinoza