Looking to invest in rental properties in California? You're not alone. Despite the challenges posed by the pandemic, interest in the California housing market remains strong. Rising home prices and increasing rents in some cities indicate that the market is slowly recovering. The demand for real estate in California is unlikely to wane, as the appeal of the Golden State is irresistible for both tech and non-tech workers alike.
With its stunning beaches, glamorous cities like Los Angeles, breathtaking mountain parks, and the charm of the Napa Valley wine region, California offers a unique lifestyle that is hard to find anywhere else. It is a place where adventure meets a thriving technology industry, productive farming regions, and beautiful coastal vacation cities. For investors, there are opportunities in the modular and built-to-rent markets, which cater to the demands of the current consumer base and comply with the state's construction regulations. Embracing new technologies and innovative approaches is the key to success in the ever-evolving housing market.
Before delving into individual rent yields and cap rates, it is important to understand the bigger picture. According to Attom Data, the average annual gross rental yield across 495 counties in the United States was 7.7% in 2021. Renting is also more affordable than buying in most areas. However, for investors, the good news is that rent prices are rising faster in Southern California, indicating potential returns on investment. Orange County, Monterey County, and Riverside County are among the least affordable areas in the country, and with the economic recovery this year, rent prices are expected to surge along with home prices.
So, which are the best cities in California for rental property ROI? Let's explore a revised and updated list of the top communities and cities in the state.
The Best of California
These communities offer the best neighborhood character, schools, safety, jobs, and other key factors for homeowners, investors, and renters. According to experts, Northern California cities are particularly desirable for investment.
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What are Rental Property Investors/Management Firms Doing?
Much of the growth in the rental income property sector comes from smaller investors and firms that own between 3 to 100 properties. These investors may be forced to sell their portfolios due to high interest rates, presenting an opportunity for corporate investors to acquire properties at a bargain. New efficiencies in acquisition, financing, and property management are fueling the growth of property portfolios in various size ranges.
Attom Data has launched a rent yield calculator tool that utilizes their extensive database of rental properties, providing valuable insights for investors. Let's take a look at their most recent report on California rent yields (2019) in selected major cities:
- San Francisco/Oakland: Rent yields decreased by 6%, renter wages increased by 18%, and the gross annual yield is 4%.
- Los Angeles: Rent yields dropped by 7%, renter wages increased by 9%, and the gross annual yield is 4.7%.
- San Diego: Rent yields dropped by 8%, renter wages increased by 11%, and the gross annual yield is 5.2%.
- Butte County: Rent yields increased by 7%, renter wages increased by 9%, and the gross annual yield is 8.1%.
- Shasta/Redding: Rent yields increased by 20%, renter wages increased by 9%, and the gross annual yield is 7.6%.
- Sonoma: Rent yields increased by 1%, renter wages increased by 11%, and the gross annual yield is 5.6%.
While many California cities experienced a period of declining yields, rising wages and employment opportunities present opportunities for investors who carefully select the right rental types in the most desirable neighborhoods.
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But Should California be Your First Choice?
California has always been a state that garners keen interest for rental properties. Its beaches, ocean views, perfect weather, and strong resilience make it an attractive destination. Moreover, being home to major corporations like Google, Oracle, Wells Fargo, Apple, and Intel provides a stable economic foundation.
California Housing Outlook
According to California housing predictions, construction was on the rise in major cities such as Los Angeles, San Francisco, and San Diego. However, recent trends indicate a leveling off of construction, which is contributing to an increase in resale prices. It is worth exploring the housing reports for these cities and the demand for apartment rentals.
The high prices in California's major cities make it a challenging environment for profitable property investment. However, certain urban neighborhoods could present possibilities. Home Snacks and Niche.com provide lists of the best communities to buy rental properties in California. These lists take into account various factors such as affordability, community character, and growth potential.
Here are a few examples from Home Snacks' and Niche.com's lists:
- Dos Palos
- Buellton
- Williams
- Big Bear Lake
- La Habra Heights
- Calistoga
- Indian Wells
- Woodside
- Solvang
- Gustine
Whether California is your first choice for rental property investment or not, the real question in 2023 is whether your property manager or landlord utilizes the best, modern digital software tools to help you maximize your return on investment. Efficient property management software, like ManageCasa, can streamline online payments, lease management, tenant communications, and accounting, ultimately enhancing your profitability.
Try out ManageCasa and experience how it can simplify the management of your portfolio.
In conclusion, California offers a unique blend of lifestyle, economic potential, and investment opportunities for rental property investors. With thorough research and the right tools, you can identify the best cities and communities in the state that provide favorable returns on investment. So, embark on your real estate journey in the Golden State and seize the opportunities it has to offer.
Disclaimer: This article does not constitute financial or investment advice. Always conduct your own research and consult with professionals before making any investment decisions.
