San Jose has more room to build than most of the Bay Area: large postwar lots, corridors zoned for more density and state laws that let one lot hold several homes. The investors who succeed here treat the city's review process and fee schedule as part of the construction budget.
In short: LendingStreet finances ground-up construction of 1 to 8 unit investment properties in San Jose and Santa Clara County, including spec homes, homes with ADUs, infill duplexes and fourplexes, build-to-rent projects and small 5-8 unit buildings. Loans are sized on loan-to-cost with terms set per project, and funds are released in draws after inspections. Approved plans and permits, a realistic budget and an experienced builder or general contractor are required.
Typical projects include new homes with detached ADUs on large lots in West San Jose, Cambrian and Blossom Valley; two-unit buildings on single-family lots under state law; fourplexes and small apartment buildings on lots zoned for multiple units near downtown, Japantown and the city's designated growth corridors and urban villages; and spec homes in Willow Glen and Almaden Valley.
Build-to-rent is attractive because new units lease well to Silicon Valley professionals, and new construction usually brings lower maintenance and easier insurance than older stock.
Large postwar lots are San Jose's quiet advantage. Many ranch homes in West San Jose and Cambrian sit on lots big enough for a detached ADU or a second home, and some investors buy an existing house, keep it as a rental and build new units behind it. Others tear down and start fresh. The right answer depends on the condition of the existing house, the lot's shape and what the zoning allows.
State law lets most single-family lots hold a second home under SB 9, along with ADUs and junior ADUs. SB 9 lot splits require the applicant to sign an affidavit of intent to live in one of the units, which does not fit an investor's plan, so investors usually use the two-unit path without a split, or ADU rules, instead.
Zoning, setbacks, height limits, parking rules and design standards still apply. Confirm with the City of San Jose's planning division what your specific parcel allows before you buy it, and ask whether a pre-approved ADU plan could shorten your review.
This example is illustrative and not a quote. A builder buys an infill lot near downtown San Jose zoned for multiple units for $900,000 and plans four two-bedroom units. Hard costs are $2,000,000 and soft costs, including design, engineering, permits, park and impact fees and utilities, are $400,000, for $3,300,000 in total.
For illustration, the loan is sized at 75% of cost, $2,475,000, and the builder contributes $825,000. Interest accrues only on drawn funds, about $233,888 over an 18-month build. The finished fourplex is estimated at $3,700,000, with projected rent of $3,400 per unit. The builder can sell the building or refinance it into a DSCR loan once leased.
| Budget line | Amount |
|---|---|
| Infill lot zoned for multiple units | $900,000 |
| Hard costs: four two-bedroom units | $2,000,000 |
| Soft costs: design, engineering, permits, park and impact fees, utilities | $400,000 |
| Total project cost | $3,300,000 |
| Loan sized at 75% of cost (illustrative) | $2,475,000 |
| Borrower equity | $825,000 |
| Estimated interest over 18 months on drawn funds | $233,888 |
| Estimated completed value | $3,700,000 |
| Projected rent, four units | $13,600 a month |
New housing in San Jose carries park impact fees, school district fees, construction taxes and utility connection charges. On a small multi-unit project, these can add up to a significant share of soft costs. Ask the city for a fee estimate early and put it in your budget, not in your contingency.
PG&E electric service and water connection timing can also hold up completion. Start utility applications as soon as plans are approved.
On a fourplex, fees are often charged per unit, so the total can surprise builders who are used to single-family projects. Get the city's written fee estimate before you finalize the land price, and update the budget if plan check changes the unit mix or size.
Funds are released in stages after inspections: site work and foundation, framing, rough mechanical and electrical, insulation and drywall, finishes and final. Use our construction draw schedule calculator to see how the balance and interest build.
Keep a documented change-order process. Inspectors compare progress with the approved budget line by line, and unapproved changes can delay a draw.
We look for borrowers or general contractors with completed ground-up projects of similar size. A borrower without a build track record can qualify when paired with an experienced, licensed general contractor and a detailed contract. Projects without plans or permits, or without an experienced builder, usually do not qualify.
Expect us to ask for the contractor's license and insurance, recent completed projects, references and a schedule. For a fourplex or small apartment building, experience with multi-unit work matters; fire separation, sound control and separate utility systems for each unit add complexity that a single-family builder may not have handled.
Spec homes are usually sold on completion. Build-to-rent owners refinance into a DSCR loan once leased. New construction is generally outside San Jose's Apartment Rent Ordinance, which covers older buildings, and is exempt from statewide rent caps for its first 15 years; confirm the details with counsel. If the finished property sells for about $2M or more, plan for the city's Measure E transfer tax.
Under Prop 13, the county adds the value of new construction to your assessed value at completion, so budget the higher tax bill in your hold analysis.
Send the parcel, plans and permit status, budget and builder details through the form below, or call (877) 298-1001. We will review costs, set up draws and tell you what the project needs to move forward. See our California construction page for statewide terms.
Yes. We finance ground-up 1-8 unit investment projects with approved plans, permits and an experienced builder.
SB 9 lot splits require an affidavit of intent to occupy, which does not fit investors. The two-unit path without a split, or ADU rules, are more common.
On loan-to-cost, including land, hard and soft costs. Terms are set per project.
Yes. Impact fees, school fees and connection charges are project costs.
Yes. Whether the ADU rent counts on a later DSCR loan depends on the program and appraisal.
Generally no. The Apartment Rent Ordinance covers older buildings, and statewide caps exempt new construction for 15 years. Confirm with counsel.
Sell, or refinance into a DSCR loan on the new leases. Projects of 9 or more units need commercial financing.
No. Our investor loans are business-purpose loans on non-owner-occupied property.
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