California Investment Property Financing: A Guide

California is the most regulated state in the country for a residential investor, and also one of the deepest. Proposition 13 reassessment, two layers of rent control, seismic retrofit ordinances, wildfire insurance and long permitting timelines all change how a purchase, a renovation or a ground-up build gets financed.

This guide covers how investors finance 1 to 9 unit investment property in California with short-term loans: bridge, ground-up construction, renovation and fix & flip, from $500k to $5M, lent to a US LLC. It then goes through the state rules that most often change the numbers.

What Passy Capital Funds in California

Passy Capital funds four short-term products in-house on fully residential property held for investment: single family, 2-4 unit, condo, townhome, PUD and small multifamily up to 9 units.

• Bridge: purchase, refinance or cash-out, up to 80% LTV (cash-out 5 points lower), 12 months, interest-only, 8% to 12%.
• Ground-up construction: spec homes and small residential buildings, up to 85% LTC, 12 to 24 months, 9% to 12%, drawn against completed work.
• Renovation: up to 90% of total cost, 12 to 18 months, capped at 70% of after-repair value.
• Fix & flip: up to 90% LTC, 12 months, capped at 70% of after-repair value.

A term sheet comes back within 24 hours, and a clean file closes in about two weeks. Foreign nationals borrow on the same terms through a US LLC, with no US credit history required. Office, retail, industrial, hospitality, mixed-use and buildings of 10 units or more are placed through our capital-partner network, and we say which route applies within 24 hours.

California Markets for Residential Investors

Los Angeles

The largest and most segmented market in the state. Investor activity concentrates on renovations of older houses, small apartment buildings, and spec homes on single-family lots, including teardown and rebuild. Many older multifamily buildings in the city fall under local rent control and seismic ordinances, both covered below.

San Francisco Bay Area

Supply is tight and prices are high, so most deals in the $500k to $5M range are single-family renovations, small multifamily and infill construction in the East Bay, the Peninsula and the South Bay. Local rent control in San Francisco, Oakland, Berkeley and San Jose shapes the value-add plan on older buildings.

San Diego

A steady market with entitlement timelines generally more workable than in the Bay Area or Los Angeles. Single-family renovations, small multifamily and spec builds are the common investor deals.

Sacramento and inland markets

Sacramento, the Central Valley and the Inland Empire offer lower entry prices than the coast, which brings more single-family flips and build-for-rent into the loan range.

Proposition 13: Underwrite the Post-Purchase Tax Bill

• Property tax is based on 1% of the purchase price, plus voter-approved local levies that push the effective rate above 1%.
• Annual increases in assessed value are capped at 2% while ownership does not change.
• A sale triggers reassessment to the new purchase price.

A seller who has owned for many years may pay tax on a value far below today’s price. A buyer pays tax on the new price from day one. For a rental held after a renovation, or for carry costs during a flip, budget the reassessed figure, not the seller’s bill.

Rent Control: Costa-Hawkins and AB 1482

Costa-Hawkins Rental Housing Act (1995)

Costa-Hawkins limits what local rent control ordinances can cover in cities that have them, including Los Angeles, San Francisco, Oakland, Berkeley, Santa Monica and West Hollywood:

• Buildings completed after February 1, 1995 are exempt from local rent caps
• Single-family homes and most condos are exempt
• Vacancy decontrol applies: rent can reset to market when a tenant leaves voluntarily

Proposition 33, which would have repealed Costa-Hawkins, failed in November 2024, the third such attempt to fail.

AB 1482, the statewide rent cap (2019)

AB 1482 caps annual rent increases at 5% plus inflation, with a maximum of 10%, on most rental housing more than 15 years old that is not already under a stricter local ordinance, and adds just-cause eviction rules. Single-family homes and condos can be exempt, but not when the owner is a corporation, a REIT, or an LLC with a corporate member. Since our loans go to an LLC, confirm with California counsel how your ownership structure is treated before you model rents on a renovated rental.

For a flip, rent control matters less than for a hold. For a renovation of an occupied small building, it decides how fast rents can move and whether the after-repair value holds.

Seismic Retrofit Ordinances

• Los Angeles soft-story ordinance: requires retrofitting of older multi-story wood-frame buildings with a weak first story, typically tuck-under parking.
• Los Angeles non-ductile concrete ordinance: covers older concrete buildings, on a longer compliance timeline.
• San Francisco soft-story program: largely complete, but a building with an open notice of non-compliance does not transfer or finance cleanly.

On a small multifamily purchase, check retrofit status before signing the purchase contract, and put any required work in the renovation budget so it is financed with the rest of the scope.

Insurance in Wildfire Areas

Property insurance has become harder to obtain in wildfire-exposed parts of the state, and some properties end up on the California FAIR Plan, the insurer of last resort, with supplemental coverage on top. Get an insurance quote early: the premium affects carry costs and resale, and a loan cannot close without coverage in place.

Permits and Ground-Up Timelines

Larger projects in coastal California can spend years in entitlement. Small residential projects move faster, and state law has opened by-right paths for some of them: accessory dwelling units, and SB 9 lot splits and two-unit projects on many single-family lots, subject to local rules. Even so, plan permit time into the construction schedule. A construction loan funds once plans are approved and a budget and contractor are in place; land with entitlements can be financed at reduced leverage as part of a residential build.

Common Mistakes on California Deals

• Using the seller’s Proposition 13 tax bill. The reassessed figure is the real one.
• Assuming a house is exempt from AB 1482. LLC ownership can change the answer.
• Leaving the seismic retrofit out of the budget. It is a cost of the renovation, not a surprise after closing.
• Quoting insurance late. In fire-exposed areas it can move the numbers more than the interest rate.

Financing a California Deal with Passy Capital

See our California financing page and the pages for single family and 1-4 unit, ground-up construction and small multifamily. For a worked example of a spec build at 85% of cost, read 85% LTC on a Los Angeles spec build; investors based abroad can start with financing a California property through a US LLC.

Submit your deal for a term sheet within 24 hours, or model it first with our loan calculator.