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
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- 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 for best rates) / 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
- Overestimating rents -- use actual market comps, not Zillow estimates
- Underestimating expenses -- budget for vacancies, maintenance, property management, capex
- Buying in rent-controlled markets without knowing rules -- LA, SF, Oakland have strict rent control
- Not screening tenants properly -- bad tenants = nightmare
- 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.
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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.
Better Offers Inc | CA DRE #01212512