San Francisco Rent Control Question - Owner Move In

[Geoffrey B.]

This is my first post on this site and I look forward to connecting with many of you! 

I'm currently living in the San Diego area but am considering making a move up to San Francisco. Was curious if anyone on here had experience with purchasing rent controlled apartment buildings and doing an "owner move in?" I've noticed that there are 100% occupied buildings for sale. They are being marketed at sub 4% CAP rates due to the upside in rents if a tenant moves out. I was curious how lenders/appraisers would treat an owner buying for example a 6 unit apartment building, then moving in to one of the units and signing a lease with the holding entity (i.e an LLC) at market rate? Based on my math, just bringing the owner's unit up to market rate would considerably improve the NOI and thus the building's overall value. Furthermore, I could theoretically purchase a building with a hard money loan with say 25% down and then refinance with a more conventional term loan once the owner move in has seasoned, as the LTV and debt coverage would be more in line with conventional underwriting.

Please let me know if my thinking is off base or if lenders don't allow for this structure. Looking forward to the discussion!