Financing 5-10 unit apartment buildings in San Francisco
TL;DR: Most 5-10 unit buildings in San Francisco are older Edwardian and mid-century buildings covered by the city’s Rent Ordinance, and many were part of the mandatory soft-story retrofit program. Long-term tenancies at regulated rents are normal. Lenders size the loan on in-place rents and want the retrofit sign-off and Rent Board records. We arrange financing with wholesale lenders.
Quick answer
San Francisco’s Rent Ordinance generally limits annual increases for units in buildings with a certificate of occupancy issued before June 13, 1979, and adds strong eviction protections. A 5-10 unit building there usually carries a mix of long-term tenants at regulated rents and recently turned units. Financing is sized on that mix, so the numbers have to work on today’s rent roll.
The building stock
San Francisco’s small apartment buildings are among the oldest in the state. Edwardian flats and early-twentieth-century walk-ups in the Mission, Western Addition, Haight, Richmond and Sunset sit beside mid-century buildings with garages at street level. Most predate 1979, which places them under the Rent Ordinance’s rent limits.
Buyers in this market usually know that already. What they need from a loan is a lender comfortable with regulated rents, long tenancies and older construction.
Rent Ordinance and long-term tenants
Under the Rent Ordinance, allowable annual increases are set by the city, and evictions are limited to listed just causes. Tenants may stay for many years, and their rents can end up far below market. When a unit is vacated, state law generally allows the owner to set a new starting rent.
Lenders look at the rent roll unit by unit, including move-in dates. A building with several long tenancies may support a smaller loan than its price suggests. That does not make it unfinanceable. It means the down payment and reserves have to be planned around today’s income.
Soft-story retrofit and building records
San Francisco’s mandatory soft-story program required many wood-frame buildings with five or more units and a weak ground story to be retrofitted. Most covered buildings have completed the work. Lenders will ask for proof of compliance. If a building was on the list and cannot show sign-off, expect delays.
Building records also matter. Units added without permits, such as in-law units in garages, are common in older buildings. The city has a program to legalize some of them, and legalized units can count. Units that have not been legalized usually cannot.
Transfer tax and expenses
San Francisco’s transfer tax rises with sale price, which affects seller pricing and negotiations. On the buyer side, Proposition 13 reassessment resets the property tax at the purchase price. Insurance on older wood-frame buildings, and earthquake coverage if a lender or the buyer wants it, should be quoted before the numbers are final.
Purchase and refinance notes for San Francisco owners
Purchases in San Francisco usually involve a disclosure package that includes Rent Board history, any buyout agreements and notes on past evictions. Read it closely. A past owner move-in or Ellis Act withdrawal can limit what you are allowed to do with a unit for years, and lenders and appraisers may ask about it. Estoppel certificates from each tenant are especially useful in a building with long tenancies.
For a refinance, the main question is whether the building’s in-place rents carry the new payment. If they do not, a smaller loan may still work. Owners who have re-leased several units after voluntary move-outs often find the numbers improve enough to support a refinance, as long as the new leases are signed and the rents are being collected.
- Soft-story retrofit compliance documentation.
- Rent Board records and move-in dates for each tenancy.
- Unit legalization status for in-law or garage units.
- Insurance quote for older wood-frame construction.
Local rules are summarized for general education and change over time. This is not legal advice. Confirm a building’s coverage with the city and with counsel.
Questions about San Francisco 5-10 unit buildings
Can I get a rent-based loan on a San Francisco building with long-term tenants?
Often, yes, but the loan is sized on the rents those tenants pay. Expect a larger down payment than the price alone suggests, and plan reserves around today’s income.
Do lenders check soft-story retrofit compliance in San Francisco?
Yes. If the building was in the mandatory program, have the compliance documents ready. Missing sign-off can slow or stop a file.
Other California markets
Have a 5-10 unit building in San Francisco?
Address, unit count, a current rent roll and the loan you have in mind. We read it the way a 5-10 unit underwriter will and tell you which wholesale programs are worth the appraisal.