On this Own More Doors episode, Juan sits down with his business partner Phoebe Todorof of Sage Trust Mortgage for a straight-talk mid-year review of the multifamily lending landscape. Rates are still elevated, news cycles are noisy, and yet—surprisingly—applications and closings are up for their team. Why? Who’s getting loans approved? And what should investors ask every lender before they make an offer? Here’s your no-fluff recap, tailored for two-to-four unit buyers in Southern California (with a few key notes for 5+ unit shoppers).
Why Loan Activity Is Up Even With Higher Rates
After two years of “I’ll wait for rates to drop,” many would-be buyers have realized that prices aren’t waiting with them. In SoCal’s one-to-four unit world—single-family, duplex, triplex, fourplex—values keep pushing upward on tight supply. Rates, while lower than their 2023 peaks, aren’t back to pre-pandemic territory; they’ve simply stabilized.
That combination—rising prices + stable but higher rates—is forcing a strategic shift: buy the right property now, then refinance later. As Phoebe puts it, “Date the rate, marry the property.” If the asset pencils, you secure today’s price and optionality. When rates cycle down, you improve cash flow through a refi rather than hoping to buy the same asset later for less (history says you probably won’t).
What Owners Are Using Cash-Out For
Even though straight rate-and-term refis remain slow, cash-out activity has momentum. Owners are tapping equity to:
- Acquire the next property. Leverage existing doors to buy more doors—textbook wealth building.
- Fund major cap-ex. Roofs, exterior paint, systems, and turn costs to capture higher post-turn rents.
- Build ADUs. Especially powerful for house hackers and small multifamily owners; adding units boosts both income and long-term valuation on the same parcel.
Rule of thumb: cash-out makes sense when the dollars are deployed into income-producing improvements or acquisitions—not toys. This is Own More Doors, not Own More Boats.
5+ Units: A Different Market, Different Money
Juan flags a unique 2025 window for 5+ unit buyers. Unlike the two-to-four unit segment (still very competitive), the 5+ “commercial residential” market is digesting loan maturities from five- to ten-year notes originated in a very different rate era. Some owners face debt-coverage constraints and refi gaps, forcing price cuts even after improving buildings and raising rents.
Translation: it’s possible—right now—to sell smaller (still-hot) and buy larger (value-driven) with a 1031 exchange. That “sell near top / buy near trough” pairing doesn’t come around often. If you’ve got equity parked in a duplex/triplex/fourplex, run the math on trading up into a better-located, newer 8-unit or similar.
The Must-Ask Questions For Any Multifamily Lender
Whether you work with Phoebe or someone else, protect yourself with these questions:
- How many multifamily loans have you closed this year? You want a specialist. At Sage Trust Mortgage, roughly 80% of their production is two-to-four unit multifamily. If a lender says “we can do it” but they’ve closed only one duplex loan all year, keep interviewing.
- What loan type fits my plan—and why? For 2–4 units, 30-year fixed is typically best priced. Interest-only fixed options exist, but ARMs have rarely beaten 30-year fixed pricing lately. If you’ll owner-occupy, ask about FHA or conventional with 5% down (program-dependent). If non-owner-occupied, plan on higher down payments and conventional underwriting.
- Do I qualify for down-payment assistance? Helpful for first-time owner-occupants on single-family/condo—but typically not available for multifamily. Clarify early so you don’t build a plan on a product you can’t use.
- What’s my rate—and why is your rate better than my bank’s? Brokers like Phoebe shop the wholesale market. Retail banks/credit unions offer one set of pricing and get paid to keep you there. If your bank suddenly “matches” a better quote only after you share it, that tells you everything about how they price you when you’re not shopping.
- Are you running a hard or soft credit pull? You can start with a soft pull for pre-qualification. Before writing serious offers, you’ll need a hard pull for full pre-approval. Avoid touring aimlessly; the right sequence saves time and heartbreak.
- Will I pay mortgage insurance (MI)? With <20% down on most conventional loans, yes—monthly MI applies and varies by credit, property type, and LTV. FHA has upfront + monthly MI; VA has a funding fee (for eligible veterans). If you can get to 20% down, you typically avoid MI and reduce payment risk.
- What’s my total monthly payment going to be? Don’t fixate on rate alone. Your PITI+MI depends on loan amount, rate, MI, taxes, and insurance. Have your lender model a few scenarios (e.g., 20% vs 25% down; buy-down points vs par rate).
- What are your lender fees—origination, discount, points? Points/origination can make sense only if the rate improvement offsets the upfront cost over your planned hold/refi horizon. Compare no-point vs 1-point apples-to-apples. If someone quotes you 3 points for the same rate another lender offers with zero points…you’ve found your red flag.
- How will you communicate milestones? Expect proactive updates at each stage: disclosures, appraisal ordered, conditional approval, clear-to-close, and signing. Silence breeds anxiety (and sometimes avoidable delays).
- Pre-qualification vs pre-approval—what do I need? Pre-qual is a quick look using unverified info (often with a soft pull). Pre-approval verifies income, assets, credit, and liabilities—what listing agents want to see in competitive situations.
DSCR Loans: When They Make Sense
Debt-Service-Coverage-Ratio (DSCR) loans evaluate the property’s income relative to its debt service and are built for non-owner-occupied investors who either:
- Have strong credit and down payment but messy/complex tax returns, or
- Prefer a property-income-driven approval over traditional DTI-based underwriting.
They’re not a cure-all—terms and rates differ from conforming loans, and the property must pencil (rents covering the payment at the lender’s DSCR threshold). This is where having a broker who truly understands investment property underwriting (and a real estate team that sources the right deals) is mission-critical.
Practical Buying Flow (So You Don’t Spin Your Wheels)
- Run numbers first. Talk to an investment-savvy lender (like Phoebe) and a multifamily agent who underwrites daily.
- Soft pull / scenario planning. Get realistic price and payment ranges.
- Hard pull + pre-approval. When you’re within 30–60 days of writing offers.
- Tour targeted properties only. Your agent screens for DSCR/DTI feasibility, rent rolls, and rent control nuance.
- Lock pricing intelligently. Consider rate-lock windows and the payoff period for points.
- Inspect like an investor. Systems, cap-ex calendar, unit-turn budgets, rent-increase strategy.
- Close and execute the plan. Renovations, leasing, and (when the market warrants) refi.
Bottom Line
- In SoCal, two-to-four units remain supply-constrained and price-resilient. Waiting for the “perfect” rate while prices climb is a lose/lose.
- 5+ unit buyers have a rare moment: motivated sellers with maturing loans and stricter DSCR hurdles equals value for well-qualified buyers.
- The right lender/agent pairing matters. Multifamily isn’t residential with more kitchens; it’s a numbers business with different underwriting, appraisals, and strategy.
If you want a second set of eyes on a Loan Estimate you already received, Phoebe is happy to review and tell you (in about 10 minutes) whether the rate, fees, and structure look competitive—or if you can do better.
Ready to map your next move? Reach out and we’ll connect the dots—financing strategy, inventory, and offer plan—all in one place.
