Modesto has a steady supply of small two-story stucco apartment buildings from the 1960s through the 1980s, many with five to eight units around a courtyard or parking lot. They offer better rent per dollar than single-family homes, but statewide rent rules and aging systems shape the plan.
In short: LendingStreet finances 5 to 8 unit residential buildings in Modesto and across Stanislaus County with DSCR loans that qualify on the combined rent of all units rather than personal income. Loans start at $150,000 with no stated maximum, the standard minimum DSCR is 1.0x, the minimum credit score is 620 and LLC borrowers are standard. Max LTV on 5-8 unit properties is often lower than on 1-4 units and varies by program.
Most five- to eight-unit buildings in Modesto are in the central and older parts of the city: around the College Area and Modesto Junior College, the neighborhoods north and east of downtown, and along older corridors such as McHenry Avenue, Coffee Road and Tully Road. Similar buildings turn up in Ceres, Turlock near Stanislaus State and Riverbank. Construction is typically wood frame with stucco, slab foundations, individual wall or rooftop air conditioning units and shared laundry.
Tenants include students, healthcare workers, retail and logistics employees and families, and demand for units with working air conditioning and parking is consistent.
We total the rent from every unit and compare it with the building's full payment: principal and interest, taxes, insurance and any association dues. The appraiser provides a rent schedule, and we review the rent roll and leases. Vacant units are generally counted at supportable market rent, though some programs limit vacancy. Expect more review than on a single house, including a detailed appraisal and possibly higher reserves.
Because these buildings are still residential for financing, you avoid a full commercial underwriting process, and the loan can carry a 30-year term. That is a meaningful advantage over the shorter terms common on commercial loans for small apartment buildings.
A clean, current rent roll that matches the leases and bank deposits makes the review much faster. Discrepancies between the rent roll and the leases are one of the most common reasons small apartment loans slow down.
This example is illustrative and not a quote. An investor buys a seven-unit building near the College Area for $1,250,000. Units rent for about $1,450 each, for combined rent of $10,150 a month. Taxes on the purchase price are about $1,146 a month and insurance is $480.
At 70% LTV the loan is $875,000, estimated principal and interest is about $6,043, the total payment about $7,669 and the DSCR about 1.32x. At 75% LTV the loan is $937,500, the payment about $8,101 and the DSCR about 1.25x. Where max LTV on 5-8 units falls depends on the program.
| Item | 70% LTV | 75% LTV |
|---|---|---|
| Loan amount | $875,000 | $937,500 |
| Estimated principal and interest | $6,043 | $6,475 |
| Taxes | $1,146 | $1,146 |
| Insurance | $480 | $480 |
| Total monthly payment | $7,669 | $8,101 |
| DSCR at $10,150 combined rent | About 1.32x | About 1.25x |
Buildings in this size range that are more than 15 years old are generally covered by California's Tenant Protection Act, which limits annual increases to 5% plus local inflation, up to 10% in total, and requires just cause for many evictions. If you buy a building with long-term tenants below market, those rents will move up gradually. Underwrite your purchase on the current rent roll and realistic turnover, not on an immediate jump to market.
The upside is stability. Tenants in older Modesto buildings often stay for years, which keeps turnover costs down, and the rent cap still allows steady annual increases. Ask the seller for a history of rent increases and notices so you know where each unit stands.
Many older Modesto buildings have individual electric meters but a single water and sewer account and shared trash, which the owner pays. Those costs are not part of the DSCR payment but affect real cash flow. Some owners use ratio utility billing to recover part of the water cost, subject to state rules. Electric service in much of Modesto comes from the Modesto Irrigation District.
Ask for roof ages, the condition of individual AC units, plumbing type and any history of slab leaks, and the condition of exterior stairs and balconies on two-story buildings. California requires periodic inspection of exterior elevated elements such as balconies and walkways on many buildings with three or more units, so ask whether the required inspection has been completed and whether repairs were called for.
Your purchase resets the assessed value under Prop 13, and a supplemental bill follows, so budget taxes on your price. Insurance for older multi-unit buildings can be harder to find in California's current market, and premiums reflect age, roof and claims history. Get a binding quote early in escrow; a FAIR Plan policy combined with other coverage is sometimes the only option, and the cost belongs in your DSCR.
Nine or more units is commercial financing; see our multifamily loans page. Investors with several small buildings can also look at a blanket portfolio loan for five or more properties.
Our investor loans are business-purpose loans on non-owner-occupied property. Send the address, price, rent roll, leases, an insurance quote and any recent inspection reports through the form below, or call (877) 298-1001. For statewide context, see our California 5-8 unit DSCR page.
Residential. We finance 5 to 8 units with DSCR loans; nine or more units is commercial.
It varies by program and is typically lower than on 1-4 units. Purchases go up to 80% LTV on standard DSCR programs, with 5-8 unit limits often below that.
Most buildings more than 15 years old are covered. Underwrite on current rents and realistic turnover.
No. The DSCR payment covers principal, interest, taxes, insurance and dues. Utilities still affect cash flow.
No. The loan qualifies on the building's rent, with a 620 minimum credit score.
Many California buildings with three or more units need periodic inspections of balconies and walkways. Ask for the report and budget for any repairs.
The DSCR is based on rent. Utility recovery is not counted as rent, but it can improve your actual cash flow where permitted.
Yes. Rate-and-term and cash-out refinances are available, with leverage that varies by program.
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