DSCR Loans in San Francisco: Bay Area Investment Analysis

San Francisco is the ultimate investor paradox. Rents that would make landlords in most markets salivate—$3,500 for a one-bedroom apartment—but purchase prices so astronomical that cash flow becomes nearly impossible.

A median single-family home in SF runs $1.4-1.6 million. A standard DSCR loan calculation looks like this:

Purchase price: $1,500,000
Down payment (25%): $375,000
Monthly payment: ~$8,200
Market rent (3-bed house): $5,500
DSCR: 0.67

That's not even close to the 1.0 minimum most DSCR lenders require.

So why are we writing this guide? Because savvy investors still make it work—just not with single-family homes in the city proper.

The SF Market Reality

Let's be brutally honest: if you're looking for positive cash flow from a rental property in San Francisco itself, you're chasing a unicorn. The city is an appreciation play, a hedge against inflation, and a parking spot for capital. It is not a cash flow market.

However, DSCR loans can work in specific situations:

1. Multi-unit buildings (2-4 units)
2. Properties in adjacent neighborhoods (Daly City, South San Francisco)
3. Properties you already own (refinance scenarios)
4. TIC (Tenancy in Common) units with existing tenants

Let's break down each scenario.

Multi-Unit Properties: Where DSCR Can Work

A single-family home in the Sunset District for $1.5M won't cash flow. But a two-unit building in the same neighborhood for $1.8M might.

Example: Outer Sunset Duplex

Purchase price: $1,750,000
Down payment (25%): $437,500
Loan amount: $1,312,500
Interest rate: 7.5%
Monthly P&I: $9,180
Property taxes: $1,820/month
Insurance: $380/month
Total debt service: $11,380

Rental income:

• Unit A (2-bed, 1-bath): $3,200
• Unit B (1-bed, 1-bath): $2,600
• Total: $5,800

DSCR: 5,800 ÷ 11,380 = 0.51

Still doesn't work. But what if you house-hack?

Live in Unit A, rent Unit B for $2,600. Now you're only looking at your ability to cover the mortgage with rental income, and—wait, this is still a DSCR loan, so your personal occupancy doesn't help.

Here's the truth: standard DSCR financing fails on most SF multi-unit properties too.

You need one of these factors:

• Below-market acquisition (estate sale, off-market deal, distressed seller)
• Already-renovated units commanding above-market rent ($3,800 and $3,000 instead of $3,200 and $2,600)
• DSCR lender willing to go down to 0.75 (they exist but require 30% down and higher rates)

Adjacent Markets: Daly City, South SF, San Bruno

This is where the numbers start to make sense.

Daly City sits directly south of San Francisco, shares the same weather (fog), and offers BART access to downtown SF in 25 minutes. But property prices are 40-50% lower.

Example: Daly City Single-Family

Purchase price: $900,000
Down payment (25%): $225,000
Loan amount: $675,000
Interest rate: 7.25%
Monthly P&I: $4,605
Property taxes: $935/month
Insurance: $240/month
Total debt service: $5,780

Rental income: $3,600 (3-bed house)
DSCR: 3,600 ÷ 5,780 = 0.62

Still not there. The problem is that Daly City rents don't drop as much as prices do compared to SF proper. People pay a premium to live in SF itself, but they don't pay proportionally less to live 10 minutes south.

However: increase your down payment to 30% ($270,000), and your DSCR improves to 0.68. Find a lender accepting 0.75, and you're in the game.

Better yet, look at South San Francisco or San Bruno for commercial properties. A small mixed-use building (retail below, apartments above) can achieve 1.0+ DSCR because commercial rents are calculated differently and tend to be more stable.

TIC Units: SF's Hidden DSCR Opportunity

Tenancy in Common (TIC) ownership is a uniquely San Francisco phenomenon. TICs are multi-unit buildings where each unit is owned individually but the building is owned collectively. They're cheaper than condos because financing is harder—most conventional lenders won't touch them.

DSCR lenders, however, often will.

Typical TIC scenario:

You buy a 2-bedroom TIC unit in Noe Valley for $950,000 (vs. $1.3M for a comparable condo). It's already occupied by a tenant paying $3,400/month.

Purchase price: $950,000
Down payment (30%): $285,000
Loan amount: $665,000
Interest rate: 7.75% (higher because TIC)
Monthly P&I: $4,780
Your portion of building expenses: $520/month
Property taxes: $990/month
Insurance: $180/month
Total debt service: $6,470

Rental income: $3,400
DSCR: 3,400 ÷ 6,470 = 0.53

Still not great, but TICs have a hidden advantage: condo conversion potential.

If the building eventually converts from TIC to condo (which many do over time), your unit's value jumps 25-35% overnight. You're essentially buying a future condo at a discount.

Some DSCR lenders familiar with SF's market will give credit for this potential, though they won't count it in the DSCR calculation. What they will do is accept lower DSCRs (0.65-0.75) if you can demonstrate strong reserves and building stability.

Rent Control: The SF Wild Card

San Francisco has some of the strictest rent control laws in America. Any building built before June 1979 falls under the Rent Ordinance, limiting annual increases to 60% of CPI (often 2-3% per year).

This has massive implications for DSCR financing:

Scenario 1: Tenant paying $2,200 for a unit worth $3,500

Market rent is $3,500, but the existing tenant has lived there for 8 years and pays $2,200.

A DSCR lender will use actual rent ($2,200), not market rent. Your DSCR will be calculated on below-market income.

But here's the opportunity: if the unit is vacant, you can bring it to market rent, sign a new tenant, and then refinance 6 months later using the higher rent to qualify for a cash-out refi.

Scenario 2: Building with mixed tenants

A 4-unit building has:

• Unit A: $2,400 (tenant from 2015)
• Unit B: $3,400 (new tenant, 2024)
• Unit C: $2,800 (tenant from 2020)
• Unit D: $3,500 (new tenant, 2025)

Your DSCR calculation uses actual rents as documented by leases: $12,100 total.

If all units were at market ($3,400-3,500 each), you'd have $13,800 in rent. That's a $1,700/month difference, or $20,400 annually. On a DSCR calculation, that could be the difference between qualifying and not.

What Works: The SF DSCR Strategy

Given the constraints, here's how investors actually use DSCR loans in San Francisco:

Strategy 1: Portfolio Refinance

You bought a duplex in Bernal Heights in 2018 for $1.2M. It's now worth $1.65M. You used a conventional loan initially but now want to pull equity out for another deal.

A cash-out DSCR refinance lets you:

• Extract up to 75% LTV ($1,237,500 loan on $1,650,000 value)
• Pay off the existing $950,000 mortgage
• Walk away with ~$287,500 cash (after closing costs)

You don't need to verify income. You don't need to worry about DTI. The property's rent ($6,200 combined) covers the new payment ($9,100), giving you a DSCR of 0.68.

That's below 1.0, but for a refinance with strong equity, many lenders will accept it.

Strategy 2: Buy in Oakland, Not SF

This feels like cheating, but it's what smart Bay Area investors do.

Oakland properties cost 50-60% of comparable SF properties. Rents are only 20-30% lower. The math works dramatically better.

Oakland example (Temescal neighborhood):

Purchase price: $750,000
Loan: $562,500 (25% down)
Payment: $4,100 + $780 taxes + $200 insurance = $5,080
Rent: $3,200
DSCR: 0.63

Still tight, but achievable with a 30% down payment and a lender accepting 0.75 DSCR.

More importantly, Oakland is gentrifying rapidly. You get better near-term cash flow AND comparable appreciation to SF.

Strategy 3: Wait for Market Corrections

SF real estate is cyclical. Tech booms drive prices up, tech busts drive them down.

In 2020, during COVID, SF rents dropped 25-30% as tech workers fled to Austin and Miami. Investors who bought then are sitting on both cash flow and massive appreciation now in 2026.

DSCR loans are perfect for these moments because you can move fast (30-day close) without income verification (useful if you're between jobs or had a down year).

Keep your reserves strong and wait for the next dip.

Strategy 4: SB9 Lot Splits

California's SB9 law allows you to split most single-family lots and build up to 4 units total.

Buy a single-family home on a large lot in the Sunset for $1.4M. The current DSCR doesn't work ($5,000 rent vs. $9,500 payment).

But split the lot, build two more units, and suddenly you have:

• Original house: $5,000/month
• New unit 1: $3,200/month
• New unit 2: $3,200/month
• Total: $11,400/month

Now your DSCR is 1.20, and you can refinance into better terms.

The catch: construction costs in SF are brutal ($450-600/sqft), and permit timelines are 2-3 years. You need serious capital and patience.

Hard Numbers: What You'll Need

To get a DSCR loan on a Bay Area property, expect:

Credit score: 680+ (720+ for best rates)
Down payment: 25-35% depending on DSCR
Reserves: 12-18 months (lenders want serious cushion given SF's high costs)
Property: Must pass rent schedule appraisal showing market rents
DSCR minimum: 0.75 with most portfolio lenders; 1.0 with institutional lenders

Current rates (Feb 2026):

• 1.25+ DSCR: 7.0-7.5%
• 1.0-1.24 DSCR: 7.5-8.0%
• 0.75-0.99 DSCR: 8.0-9.0%

You'll also pay:

• Origination: 1-2 points
• Higher insurance (earthquake required, $400-800/month)
• Transfer taxes (SF city transfer tax is 2.5% on properties over $1M)

The Earthquake Factor

California lenders require earthquake insurance for DSCR loans. In San Francisco, this isn't cheap.

A $1.5M property might cost:

• Standard homeowner's: $2,400/year ($200/month)
• Earthquake: $4,800-7,200/year ($400-600/month)

That's an extra $600/month in your debt service calculation, which drops your DSCR by 0.10-0.15.

Some investors try to skip earthquake coverage after closing. This violates your loan terms and puts you at risk of default if the lender finds out.

Should You Even Try?

Here's the honest answer: DSCR loans for cash-flowing SF properties are extremely difficult in 2026.

You should pursue this strategy if:

1. You're buying multi-unit (2-4 units minimum)
2. You're looking in adjacent cities (Daly City, South SF, Oakland)
3. You're refinancing to pull equity, not buying
4. You have 30%+ to put down
5. You have 18+ months of reserves
6. You're playing for 10+ year appreciation, not current cash flow

You should not pursue this if:

• You need positive cash flow year one
• You're buying a single-family home in SF proper
• You have minimal reserves
• You can't handle potential 10-20% market corrections

Alternative Approaches

If DSCR doesn't pencil out, consider:

Conventional investment loan: If you have W-2 income, you might qualify for better rates (6.5-7.0% vs. 7.5-8.5%)

Seller financing: In a slow market, some SF sellers will carry a note, especially on TICs or properties with deferred maintenance

Syndication: Pool money with other investors to buy a 6+ unit building where the economies of scale work better

House hacking: Buy a 2-4 unit with 5% down FHA, live in one unit, rent the others. Not DSCR, but a way to get started.

The Bottom Line

DSCR loans in San Francisco are a tool for sophisticated investors with significant capital who understand they're buying appreciation, not cash flow.

The typical buyer profile:

• Tech equity from a recent exit or IPO
• $300,000-500,000 to deploy
• High income but messy tax returns (1099, K-1s, stock comp)
• Wants SF real estate exposure without employment verification
• Comfortable with $500-1,000/month negative cash flow
• Planning to hold 7-10 years minimum

If that's you, DSCR financing can work. You'll pay higher rates and need bigger down payments, but you'll build equity in one of the world's most supply-constrained real estate markets.

Just go in with your eyes open: this is not the cash flow game. This is the "park my money somewhere it won't depreciate" game.

And in San Francisco, that's often the best game in town.