San Jose's 5-8 unit buildings are mostly two-story garden apartments and walk-ups from the 1950s through the 1970s. Nearly all of them fall under the city's Apartment Rent Ordinance, which shapes how fast income can grow and how the building should be financed.
In short: LendingStreet finances San Jose buildings of 5 to 8 units with residential DSCR loans that qualify on the building's rent roll, with no W-2s or tax returns and LLC borrowers standard. Loans start at $150,000 with no stated maximum, the standard minimum DSCR is 1.0x, and maximum LTV on 5-8 units can be lower than on 1-4 units; it varies by program. Buildings of 9 or more units are commercial loans.
Small apartment buildings cluster near downtown, in the Naglee Park and Japantown areas, along The Alameda and the Burbank neighborhood, around San Jose State, and in older parts of East San Jose and West San Jose near Stevens Creek and Winchester. Similar buildings exist in Santa Clara and Campbell.
Tenants include students, healthcare and service workers, and tech employees who want to live close to downtown or transit. One- and two-bedroom units are the norm, often with carports and a shared laundry room.
San Jose's Apartment Rent Ordinance generally covers apartments in buildings of three or more units built before late 1979. Annual increases on covered units are capped at 5%, and the Tenant Protection Ordinance requires just cause for most terminations. Owners must register covered units with the city's rent stabilization program and pay an annual fee.
For a DSCR loan, that means two things. First, we qualify on in-place leases, so long-term tenants paying below market lower the loan amount. Second, rent growth is gradual by law, so do not count on large increases to fix a thin ratio after closing.
This example is illustrative and not a quote. An investor buys an eight-unit 1960s building near downtown for $3,100,000. Four one-bedroom units rent for $2,250 and four two-bedrooms for $2,700, for $19,800 a month. Taxes on the purchase price are estimated at $3,100 a month and insurance at $1,000.
At 65% LTV, the loan is $2,015,000 and the ratio is 1.13x. At 60%, the loan is $1,860,000 and the ratio is 1.20x. The last row shows the ratio if every unit took the full 5% annual increase, a reminder that income growth under the ordinance is steady but slow. Actual maximum LTV on 5-8 units varies by program.
| Item | 65% LTV | 60% LTV |
|---|---|---|
| Loan amount | $2,015,000 | $1,860,000 |
| Estimated principal and interest | $13,406 | $12,375 |
| Taxes and insurance | $4,100 | $4,100 |
| Total monthly payment | $17,506 | $16,475 |
| Monthly rent (four 1-bed, four 2-bed) | $19,800 | $19,800 |
| DSCR | 1.13x | 1.20x |
| DSCR if every rent rose by the 5% annual cap | 1.19x | 1.26x |
Our residential DSCR programs cover 1 to 8 units, so an eight-unit San Jose building can be underwritten on rent with long-term, 30-year financing, rather than a full commercial process. The appraisal weighs both the income approach and comparable sales, and reserve requirements reflect the building's size.
If you are comparing an eight-unit building with a ten-unit one, the financing paths differ, so see our multifamily page before you decide.
The appraisal for an eight-unit building also looks at expenses the DSCR test ignores, such as management and owner-paid utilities, when estimating value. A clean operating statement helps the appraiser support the price.
California requires periodic inspection of exterior elevated elements, such as balconies, decks and stairways, on buildings with three or more units. On a 1960s wood-frame building, ask whether the inspection is complete and whether repairs are outstanding. Also review the roof, electrical service, plumbing, sewer lateral and any history of termite or dry rot repairs.
Insurance for older apartment buildings has become more expensive in California. Get quotes early and use them in your analysis.
Under Prop 13, the building is reassessed to your purchase price, so expect a higher bill than the seller's. If the price is at or above about $2M, San Jose's Measure E transfer tax applies in addition to the county's documentary transfer tax. On a $3M building, those are significant closing costs; confirm current tiers with the city.
Owners of rent-stabilized buildings typically add value by renovating units at turnover, adding ADUs in carports or unused space where state law and city rules allow, improving common areas and reducing operating costs. Any new unit must be fully permitted before its rent counts, and adding units could move a building past eight units into commercial territory, so plan the count carefully.
The DSCR test uses principal, interest, taxes, insurance and any HOA. A small San Jose apartment building also carries costs the ratio does not see: the city's annual rent stabilization fee per covered unit, common-area PG&E service, water and garbage if the owner pays them, landscaping, laundry upkeep and turnover. Many older buildings have a single water meter, so the owner pays for every unit's water.
These costs do not change whether you qualify, but they change your cash flow and the reserves you should keep. Ask the seller for twelve months of utility bills and an operating statement, and compare them with similar buildings.
Professional management is common at this size. A well-documented rent roll, clean registration records and low turnover make a building easier to appraise now and to refinance later.
Send the address, price, rent roll and target leverage through the form below, or call (877) 298-1001. We will size the loan on actual leases. See our California 5-8 unit page for statewide terms.
For our programs, 5 to 8 units is residential and financed with a DSCR loan. Nine or more is commercial.
Generally, if it has three or more units and was built before late 1979. Confirm with the city's rent stabilization program.
Annual increases on covered units are capped at 5%. Plan your numbers around that limit.
It can be lower than on 1-4 units and varies by program. In San Jose, the ratio often limits leverage first.
If the building has elevated wood balconies or stairs and three or more units, state law requires periodic inspection. We may ask about it.
Yes. LLC borrowers are standard, and you sign for the loan personally.
State law allows ADUs on multifamily properties within limits. They must be permitted before their rent counts.
No. The ratio uses principal, interest, taxes, insurance and any HOA. The fee affects cash flow, so budget for it.
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