Loan options for 5+ unit properties in California

Important: We're not financial advisors and this isn't formal financial advice. We can't guarantee any of these paths will be available to you — they're ideas to explore with qualified professionals. The example terms below are for illustration only; market conditions change quickly and may not reflect what's currently offered. We're not compensated by any lenders mentioned.

Properties with five or more units are classified as "commercial multifamily" rather than residential. This means the lenders and loan types are different from a typical home mortgage.

This article covers three ways groups can finance a 5+ unit property to live together as owner-occupants with friends and family.

Simplest: Single Commercial Loan

This is likely the simplest and most conventional financing structure.

How it works

A single commercial loan is made to:

An individual
A group of individuals
An LLC or other entity owned by one or more individuals

In all cases, lenders typically require personal guarantors who are on the hook for repayment, even if an LLC is the borrower.

Income qualification

Commercial loans are underwritten based on the property's income, not just your personal income. You'll provide a pro forma showing expected rents and operating expenses. Lenders evaluate whether the projected net income covers the debt payments, measured by something called the Debt Service Coverage Ratio (DSCR).

A typical minimum is around 1.25–1.35x DSCR, meaning the property's income needs to exceed the loan payment by 25–35%.

Some lenders will also factor in the personal income of the guarantors — sometimes called "global income underwriting." This can help if you plan to live in part of the property or leave some units unrented. Banks sometimes offer this flexibility because they want to build broader relationships with high-income borrowers.

Commercial lenders generally have more flexibility than residential lenders, who are constrained by Fannie Mae and Freddie Mac guidelines.

Typical terms

Compared to residential loans, expect:

Somewhat higher interest rates
Larger down payments (often 30–40% vs. 20%)
Adjustable rates rather than fixed (though fixed options exist)
Negotiable terms — 30-year amortization is common, but 20 or 10-year terms may come with lower rates
Some commercial loans are “assumable” meaning they can be transferred to another party in certain circumstances.

Pros

Widely available, many potential lenders
Simple: one loan, one property

Cons

Personal financial exposure for guarantors
Higher down payment requirements

Lenders to consider (California)

Fremont Bank
Banc of California
Redwood Credit Union
Steven Smith, Venture West Funding - ssmith@ventwest.com , 310-706-4457

Alternative 1: Fractional TIC Loans

TIC (Tenancy-in-Common) loans are more complex, but they offer a key advantage: multiple buyers can get separate loans rather than relying on a single loan guaranteed by a few people.

How it works

A TIC is an ownership structure where multiple parties co-own a property while each having exclusive use rights to specific units. (Andy Sirkin has widely referenced resources on TIC structures in California.)

In California, a handful of lenders offer loans secured by an individual's TIC interest. This means one property can support multiple loans — similar in concept to how condo units are financed, though legally distinct.

Example: A five-unit building is listed for $5M. Five buyers form a TIC, with each person taking exclusive use of one unit and a 20% ownership interest (worth $1M). Each buyer gets their own loan — say $750K with a $250K down payment — secured by their individual TIC interest.

Special considerations for 5+ unit properties in California

The California Department of Real Estate (DRE) has additional rules that may apply to Tenancy-in-Common (TIC) structures involving properties with five or more legal units. Depending on how a TIC is structured, DRE approval may be required. When required, this process can take 6+ months. Andy Sirkin has a write-up here.

In situations where DRE approval is needed, buyers sometimes explore interim approaches—such as a temporary bridge loan.

The applicability of these requirements is highly fact-specific. We recommend speaking with a California real estate attorney to understand how the rules may apply in a particular situation.

Also note: TIC lenders may have restrictions on which units can secure a loan. For example, you'll want to confirm whether an ADU qualifies.

Typical terms

Interest rates similar to or slightly higher than conventional residential loans
Down payments often 25–30%
Usually adjustable-rate

Pros

Individual buyers get separate, residential-style financing
Avoids concentrating loan liability on a few guarantors

Cons

Greater legal, regulatory, and structural complexity
Fewer active lenders in the market

TIC lenders to speak with

Redwood Credit Union
Bank of Marin
Bank of San Francisco
National Cooperative Bank

Alternative 2: Co-op Financing

Like TIC financing, co-op structures let individuals finance their participation separately. The mechanics are different, but the benefit is similar.

Co-op financing is most common in New York City in co-op buildings, but it can work for communities co-owning property together anywhere.

How it works

A cooperative corporation owns the entire property. Residents purchase shares in the corporation along with a right to occupy a specific unit (usually through a proprietary lease or occupancy agreement).

Financing typically happens at two levels:

Blanket loan: The co-op itself takes out a mortgage on the property. Members then pay monthly charges that cover their share of the debt service, plus operating costs like insurance, taxes, and maintenance. This is different from a TIC, where each person carries their own loan directly.

Share loans: Individual members can also get loans to finance their purchase of shares in the co-op. Not all lenders offer these, but they function similarly to a mortgage — you're borrowing against your ownership stake.

Pros

Individuals can finance their share purchases separately
The co-op can set its own values, rules, and transfer restrictions

Cons

Fewer lenders and more specialized underwriting
Requires robust governance: bylaws, membership rules, reserves, decision-making processes

Co-op lenders to speak with

National Cooperative Bank