Cash Flow Analysis for San Francisco Multi-Unit Properties

Buying a multi-unit in San Francisco can look great on paper until you plug in local rules and real costs. You want steady income and a clear path to long-term value, not surprises after closing. In this guide, you’ll learn how to build a reliable cash flow model that reflects San Francisco rent laws, taxes, financing, and building requirements. Let’s dive in.

Cash flow basics in San Francisco

Cash flow starts with a simple formula: Net Operating Income (NOI) = Effective Gross Income − Operating Expenses. Only after you have NOI do you layer in loan payments to see cash flow before taxes.

Lenders also look at Debt Service Coverage Ratio (DSCR). Most small multifamily loans target about 1.20 to 1.35. That means NOI should be at least 20 to 35 percent higher than annual debt service.

Finally, value often ties back to cap rate. Value equals NOI divided by cap rate. Small multifamily cap rates in San Francisco have recently ranged around 4 to 6 percent, depending on building class and condition, according to recent market snapshots. You can review local cap rate snapshots for context in the Matthews report.

Start with rents you can collect

Begin with current leases, not wishful thinking. San Francisco’s Rent Ordinance generally covers units built on or before June 13, 1979, with rent control and eviction protections. You can review San Francisco rental laws for coverage basics.

If a unit is locally rent controlled, use the Rent Board’s Annual General Adjustment for growth. For example, the allowed increase effective March 1, 2025 through February 28, 2026 is 1.4 percent. Units not covered by the local ordinance but covered by state law are subject to the California Tenant Protection Act (AB 1482), which caps increases at 5 percent plus local CPI, up to 10 percent.

To sanity check projected rents, look at direction of the market. Recent reporting on rent trends shows rising rents and tightening vacancy in 2024 and 2025.

Vacancy and other income

Use a vacancy and credit loss allowance of about 3 to 7 percent for stabilized assets. Move to the higher end if your building needs work, has long concessions, or is in a slower lease-up period.

Add other income that is legally permissible and supported by the property, such as parking, laundry, or storage. Some fees have notice or use limits under local rules, so check the Rent Board guidance before modeling new charges.

Operating expenses to expect

Expenses in San Francisco run higher than many markets. A quick way to check your model is the Operating Expense Ratio (OER). For multifamily, 35 to 45 percent of gross income is common. For small 2- to 4-unit buildings, it can be 40 to 55 percent.

Key line items:

• Property taxes. California Proposition 13 sets a base 1 percent rate plus local assessments. Many San Francisco parcels land around 1.1 to 1.3 percent of market value. Review how San Francisco property taxes under Proposition 13 apply to your parcel.
• Insurance. Budget for higher premiums and potential year-over-year increases. Consider earthquake or umbrella coverage as needed.
• Utilities. Water, sewer, trash, and any owner-paid common area utilities. Consider RUBS or submetering where legal and feasible.
• Repairs and maintenance. Older buildings need more. Add capital reserves for roofs, systems, and compliance.
• Management. If professionally managed, budget about 6 to 10 percent of effective gross income.
• Reserves. Many lenders and prudent owners set annual capital reserves or a per-unit amount for ongoing needs.

For deeper context, see Operating expense ratio guidance.

One-time costs: transfer tax and closing

San Francisco charges a tiered transfer tax at closing. On a $3,000,000 purchase, the current tier ($1M to $5M) is $3.75 per $500 of price. That is $3.75 multiplied by 6,000, which equals $22,500. You can confirm your exact figure on the San Francisco transfer tax page and add recording and other closing fees.

Compliance and seismic planning

Many older wood-frame buildings face soft-story seismic retrofit requirements. Costs vary widely by size and scope, from tens of thousands into the low six figures. Some programs may offer financing or limited passthroughs. City guidance notes that certain federal grant support reported in 2025 was canceled, which can shift more cost to owners. Build a retrofit line item or reserve if your building is subject to these rules and review the city’s soft-story retrofit program page during due diligence.

Build your San Francisco pro forma

Follow a simple flow so you do not miss a step:

1. Gross Scheduled Rent. Use in-place rents or market for vacant units based on control status.
2. Other Income. Parking, laundry, storage, and permitted fees.
3. Vacancy and Credit Loss. Typically 3 to 7 percent for stabilized SF assets.
4. Effective Gross Income (EGI). Gross scheduled rent plus other income, minus vacancy.
5. Operating Expenses. Taxes, insurance, utilities, repairs, management, and reserves. Cross-check the OER.
6. NOI. EGI minus operating expenses.
7. Debt Service. Plug in actual lender quotes for rate, amortization, and required DSCR.
8. Cash Flow and Cash-on-Cash. Cash flow before taxes divided by total cash invested.
9. Sensitivity. Test rents down 5 to 10 percent, vacancy up 2 to 5 points, and higher expenses or rates.

Illustrative 4-unit example (simple)

• Purchase price: $2,000,000
• Gross scheduled rent: 4 units at $2,500 per month equals $120,000 per year
• Other income: $4,800 per year
• Vacancy at 5 percent: $6,240, so EGI is $118,560
• Operating expenses at 40 percent of gross income: $47,424
• NOI: $71,136
• Financing: 25 percent down, $1,500,000 loan at an illustrative 6.0 percent, 30-year amortization, annual debt service about $107,919
• Cash flow before taxes: negative $36,783

Interpretation: at this price and debt level, cash flow is negative. That can be common in high-price, low-cap-rate markets. You should rerun the model with actual rent rolls, expense statements, tax and insurance quotes, and current lender terms before making decisions.

Financing and DSCR checks

For 2- to 4-unit properties, owner-occupants may use FHA programs with lower down payments, while investor loans often require 20 to 30 percent down. Review FHA and investor loan basics for program structure and confirm current loan limits and terms with a lender.

Underwrite to the lender’s DSCR target, commonly 1.20 to 1.35 for small multifamily. Add reserves equal to several months of debt service and a realistic annual capital reserve. Always test a rate shock and a few months of elevated vacancy.

Cap rates and value cross-check

Use cap rates to confirm price versus income. With cap rates often around 4 to 6 percent in San Francisco, a $100,000 NOI implies a value from about $1.67 million to $2.5 million. Small changes in cap rate can move value by hundreds of thousands, so pair your pro forma with recent cap rate snapshots and nearby comparable sales.

Due diligence checklist

• Current rent roll and all leases, including deposits and any concessions.
• Seller’s operating statements for 2 to 3 years, plus utility bills.
• Rent control status and Rent Board registration or cases. Start with the Rent Board’s main page for guidance.
• Permit history and seismic/soft-story status. Review the city’s soft-story retrofit program page.
• Property tax bill and transfer tax estimate. See San Francisco property taxes under Proposition 13 and the San Francisco transfer tax page.
• Insurance quotes, including earthquake options.
• Lender term sheet with rate, amortization, DSCR, and reserve requirements.
• Professional inspections and contractor estimates for deferred maintenance and compliance work.

Common pitfalls to avoid

• Counting on rent growth beyond legal limits for controlled units.
• Forgetting the property tax reset on purchase price and local assessments.
• Underestimating insurance, utilities, and professional management for small buildings.
• Ignoring seismic or code compliance costs that may be required.
• Skipping sensitivity analysis on rents, vacancy, rates, and expenses.

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FAQs

What vacancy rate should I use for San Francisco small multifamily?

• A common underwriting range is 3 to 7 percent for stabilized assets, adjusting higher for concessions or operational issues.

How does San Francisco rent control affect rent growth in my model?

• For rent-controlled units, use the Rent Board’s Annual General Adjustment, which is 1.4 percent from March 1, 2025 to February 28, 2026; state AB 1482 caps many non-local units at 5 percent plus CPI, up to 10 percent.

How do I estimate San Francisco property taxes after I buy?

• Start near 1.1 to 1.3 percent of purchase price in many cases, based on 1 percent base under Proposition 13 plus local assessments, then verify with parcel-specific data.

What is a reasonable operating expense ratio for a 2- to 4-unit building?

• Plan for the higher end of multifamily ranges, often 40 to 55 percent of gross income, due to per-unit costs and management.

What DSCR do lenders want on small multifamily in San Francisco?

• Many lenders target 1.20 to 1.35, with reserves and stress tests for vacancy and rate changes.

How should I budget for soft-story seismic retrofits?

• Costs vary from tens of thousands into the low six figures based on building size and scope; check city program pages and include a dedicated reserve or capex line in your model.