Montrae999, Home Buyer in San Francisco, CA

I can afford payments on a $500,000 loan.I want to buy a multi-fam home and collect rent.Can I get a loan for $1mil if the rental income will help?

Asked by Montrae999, San Francisco, CA Sat Apr 16, 2011

I want to move to san francisco and live in the city. To get a better return on my home investment I would like to become a landlord. In my opinion the best way to do this would be to buy a multi-family home. I would like to live there and rent out what I can. I can afford to make monthly payments on a $500,000 loan. But I would like to purchase a property that is more like $1million and have the rental income cover the rest of my monthly payments if not more. Does anyone know if banks will allow me to do this? If so what kind of terms would I have to agree to and what kind of options would I have?

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Michael Mull…, Mortgage Broker Or Lender, Bend, OR
Sat Apr 16, 2011
Montrae, I'm a CA lender and thought I'd give you some general guidelines. Jackie's comments and suggestions are right on the mark.

From a lending perspective your best rates and flexibility in qualifying are going to be if you can stay within the High Balance Conforming loan terms. For San Francisco that limit is $934,200 on a 2 unit property, $1,129,250 on a 3 unit, and $1,403,400 for a 4 unit dwelling. Those are the mortgage limits, not the sales price limit. Add your down payment on top of those limits to get your sales price.

Expect to put at least 25% down on a multi-unit property.

Once you go above those limits you fall into Jumbo loan territory and the rate will be higher and the qualifying will be much more difficult.

Whether you can personally qualify is impossible to say. Best bet is to make an application with a lender and get pre-approved. That's the only way you'll know for sure. The cost shouldn't be more than about $20 for the credit report and you are not any obligation to actually take the loan - I tell my clients the pre-approval is kind of like a very high balance line of credit. If you want to use it great, if not just cancel.

If you have any other questions or you'd like help with this feel free to contact us via our profile
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Gregory Karr, , San Francisco, CA
Sat Apr 16, 2011
Banks will allow you to do this. The rental income you would expect from the 2nd unit (if a duplex) can be counted as income even though the 2nd unit is not rented yet.

For your example of a $1M duplex with you living in one unit and assuming you could rent the other unit for $2,500 would go something like this: For simplicities sake let's say you don't have any personal debt (if you do have personal debt then the loan you would end up with will be lower than the $500,000 you mentioned.

The lender will only count 75% of the $2,500 rent as income or $1,875. The taxes and insurance on the rental unit will be around $650 a month ($650 will also be allocated to the unit you occupy, assuming the two units are about the same size). Lenders assume 25% of the gross rental income will go to expenses to operate such as maintenance, repairs, utilities, landscaping, management, and vacancies. If you don't incur any of these expenses then your actual net rental income will be higher than $1,875, but don't count on it. Over the long run you will have expenses to cover and most likely have some vacancies, too.

The $1,875 less the taxes and insurance for the rental unit equals $1,225 net rental income that the lender will you credit for. Annually that's $14,700 or a 2.94% return on the $500,000 allocated the rental unit not including depreciation which would be about $7,000 a year after deducting the land value. That $7K depreciation will be worth about $1,500 in tax savings if you're in the 20% tax bracket and bump up your return to 3.24%. That 's good for San Francisco.

With this scenario you are looking at a down payment of $500,000 plus closing costs and settlement charges. Costs and charges will be $5,000 to $10,000.

Another way to look at it would be the $1,225 net rental income would cover around a $215,000 mortgage. So, instead of earning cash-flow you could finance $715,000 to break-even and have a $285,000 down payment plus costs and charges.

The risks: 1) San Francisco has rent control laws that favor tenants not the landlord 2) the rent may not be $2,500 3) if you cannot rent for 30 days that's means no income for that time. Alternatives: 1) pay less in an area not in SF 2) get a single family and rent to a roommate or two 3) just get a home for yourself and forget about the rental aspect.

So much of what you can do depends on how much cash you are willing to invest. I specialize in investment property so if you would like to talk, call me at 415 695-0254.
1 vote
Brent Kluge, Mortgage Broker Or Lender, Bel Air, MD
Sat Apr 23, 2011
Yes, Yes, and Oh Yes. I do multi-unit mortgages on a regular basis, AND renovations as well. Need to freshen the property up? I'm sure you are doing your Due Diligence.... just give me a ring and compare. I would be glad to help and probably give you your best rate/program.

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Matt Ciganek, Agent, San Francisco, CA
Sat Apr 16, 2011
Hi - Your best bet would be to contact a loan officer in San Francisco who is familiar with making multi-family loans. Loan programs also differ between 1-4 Unit properties and 5 + Unit properties. You'll be able to find out what your purchasing power will be and focus on the types of properties you can afford. Make sure your agent is very familiar with San Francisco multi-family properties as the tenancy situations can make a big difference in price and desirability. Feel free to contact me for suggestions about who would be able to help you with understanding which type of property would be best for you. -Matt Ciganek, Barbagelata Real Estate
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Matthew Goul…, Agent, San Francisco, CA
Sat Apr 16, 2011
To answer your question simply, you need to talk with a Realtor and a Mortgage broker, 1) to see if you do actually qualify for the type of loan and 2) to find a property that matches your needs.

Please call or email me for a referral to a Mortgage broker who specializes in San Francisco and multi unit buildings.

Matthew 729.4189
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Jackie Cuneo,…, , San Francisco, CA
Sat Apr 16, 2011
Hi Montrae, The short answer is, it depends on how much the rental income is on that $1million building.

You do have a few options. When purchasing a multiple-unit property where you will live in one of the units, most lenders will count 75% of actual rents (based on current leases/proof of rents), or 75% of projected rents. Depending on the number of units and location of the property, the maximum loan limits differ.

The answer to this question is mainly dependent on 2 things: How much $$ can you put down? You could purchase a multiple-unit property here in SF with as little as 10% down, plus closing costs--of course, this is more than you'd need to put down on a single family home priced at $500k. How much are the actual, or projected rents on the property? A $1million property with $50,000 a year of rental income is very different in the eyes of a lender than a $1million property with $20,000 a year of rental income. What the rents do not cover, you will have to make up for with income of your own. You do also need to consider maintenance costs, utilities, additional liability insurance being a landlord will require, and the larger property tax bill that comes with a more expensive property. Plus, the actual headaches of becoming a landlord. It's not always an easy job.

Most multiple unit buildings are priced to reflect the value of current rental income + the value of the property itself; your Realtor can help you do some preliminary analysis about whether a certain building might be something you can purchase based on current or projected rents.

If you would like to see how much you can qualify for if you were to purchase a particular multiple-unit building based on its list price and rental income (your Realtor can get rental records from the listing agent), please let me know and I'll work up some numbers for you.
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Dallas Texas, Agent, Dallas, TN
Sat Apr 16, 2011
If you can't qualify for more than $500K you won't be approved

Lenders point of view WHEN the tenant moves out till unit is leased you still have to make payments,

Recommend stay within a budget you can afford with OR without tenants

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes
Ronnie Bramer, Agent, Fort Thomas, KY
Sat Apr 16, 2011
The short answer is you are a very intelligent buyer to set this as your goal. Yes, you can use the income from the other units to help you qualify. Obtaining a loan today is very tricky especially in the upper price ranges. I can help point you in the right direction . My wife Ellen ( is a Loan Officer with First Choice Bank a very strong national lender. She can help you with the right program, down pymt, loan terms and price range you can purchase in. I also have a good friend who has been a RE Broker in SF the last 30 years that would be glad to answer your questions and even offers buyer rebates up to 1%. You can reach me at If you would like his information.
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Christopher…, Agent, Irvine, CA
Sat Apr 16, 2011
Hi Montrae999,
I would contact a lender / loan officer to discuss your options. There are a lot of other factors that need to be considered and just b/c you can afford a $500k mortgage does not mean you will qualify for a $500k loan or $1million for that matter. Your mind is in the right track as far as becoming a landlord and looking for a multi unit property.

Good Luck
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