10 Best Places to Buy Rental Property in California [2023]

Are you looking for the best places to buy a rental property in California? With one of the country’s most diverse and vibrant real estate markets, there are many significant areas to consider if you want to buy a rental property in the Golden State.

From large cities like Los Angeles to smaller towns across the state, it offers many opportunities for real estate investors seeking to purchase a rental investment property.

In this guide, we’ll review the best cities to buy a rental property in California and provide insights on what it takes to become a successful investor.

Overview of Rental Property Investment in California

Source: fred.stlouisfed.org

Investing in the California housing market is a great way to build wealth and generate passive income. The median home value in California as of February 2023 is over $800,000 and has risen an impressive 17.5% yearly after COVID-19. This indicates that the California housing market is performing well and is a good place to invest in real estate. Following are some additional reasons that you must consider for buying rental property in California

California real estate market is ideal for investment in rental properties, and here are the reasons why:

1. Top rental markets: Several cities in California have consistently ranked among the top rental markets in the country, including San Francisco, Los Angeles, and San Diego, in terms of rental rates and rental yield.
2. Robust economy: The Golden State has the largest economy in the United States and the fifth-largest globally, with a GDP of over $3 trillion. The state’s booming economy, including technology, entertainment, and agriculture sectors, makes it an ideal real estate market.
3. Population growth: California’s population is projected to reach over 45 million by 2040. The peak is yet to come over the next decade, leading to high demand for housing and rental properties.
4. Limited housing supply: California’s limited housing supply has resulted in a shortage of rental properties, leading to increased rental rates and high demand.

Investing in rental properties in California provides a lucrative opportunity due to the state’s high demand for housing, limited housing supply, strong economy, and top rental markets.

Investing in rental property can be a great way to build wealth, provide steady income and diversify your portfolio.

10 Best Places to Buy Rental Property in California

The California real estate market has many great cities for investment opportunities. Here are 10 of the best places to buy a rental property in California:

1. The Bay Area

San Francisco is a well-established city for selling homes due to its good economics and property values. But that is a double sword. Several restrictions on construction are placed in the city, making it difficult to find investment properties. It also has strong competition.

San Francisco bay area is known for its tech industry and thriving economy, making it desirable for investors seeking a rental property.

Average rent: $3,300

Average home price: $1.3 million

Median home price: $1.7 million

Appreciation in the last decade: 389%

2. San Jose

San Jose, the largest city in Northern California, is a hub for the tech industry. Major employers such as Apple, Google, and Facebook are in the area, making it an attractive location for investors looking for the best places to buy a rental property in California.

Average rent: $3,200

Average home price: $1.29 million

Median home price: $1.3 million

Appreciation in the last decade: 200%

3. San Diego

San Diego is a popular coastal city in Southern California that offers excellent investment opportunities for rental properties. The city has a diversified economy with major healthcare, education, and tourism employers.

San Diego’s warm climate, beaches, and outdoor recreation make it a desirable location for tenants, increasing the demand for rental properties. This, along with its low vacancy rates and steady rental growth, makes San Diego a lucrative investment option for rental properties.

Average rent: $3,200

Average home price: $893,000

Median home price: $915,000

Appreciation in the last decade: 227%

4. Oakland

Northern California City, Oakland, has been experiencing significant growth and development in recent years, making it an attractive location for investors looking to buy rental properties. The city has a diverse economy with major healthcare, transportation, and technology employers.

Average rent: $2,800 monthly

Average home price: $785,000

Median home price: $735,000

Appreciation in the last decade: 257%

5. Los Angeles

Los Angeles is one of the largest cities in California and is known for its entertainment industry, beaches, and mild year-round. It also serves as an entry point for riverside counties and cities like palm springs.

The largest city of Los Angeles County has a strong job market with major entertainment, technology, healthcare, and education employers. This has helped keep the unemployment rate low, making it an ideal location for investors looking to buy real estate.

Average rent: $2,700

Average home price: $901,000

Median home price: $823,000

Appreciation in the last decade: 200%

6. Santa Barbara

Santa Barbara is a coastal city which makes it the best place to buy a rental property in Southern California; that offers a desirable location for investors of rental property. The city is known for its beautiful beaches, Mediterranean climate, and vibrant downtown area, making it a desirable location for vacation home buyers.

The local economy is also diverse, with major industries such as healthcare, education, and tourism, providing stable job opportunities for residents. Despite the high cost of living in Santa Barbara, the city offers many amenities, such as parks, museums, and a thriving arts scene, making it a popular location for families and retirees. The city has a strong rental market, with high property demand due to limited housing supply.

Average rent: $2,600

Average home price: $1.6 million

Median home price: $2.3 million

Appreciation in the last decade: 243%

7. Long Beach

Long Beach is a coastal city in southern California, Los Angeles County, that offers investment opportunities for vacation rental property. In addition to being a popular tourist destination itself, Long Beach’s proximity to other attractions, such as Huntington Beach in Orange County, can further increase demand for short-term rental properties.

Long Beach is known for its second-busiest port in the country, making it a vital economic hub. The healthcare, education, hospitality, and manufacturing industries drive the city’s job market. The unemployment rate in Long Beach is 4.3%, making it a viable location for rental property investors.

Average rent: $2,600 monthly

Average home price: $771,000

Median home price: $785,000

Appreciation in the last decade: 261%

8. Sacramento

One of the Major Cities of Northern California, Sacramento is the capital of California and offers affordable investment opportunities for rental properties compared to other major cities in the state. Sacramento’s rental yields in the past few years are higher than many other California cities, making it a potentially lucrative investment option for rental properties.

Sacramento’s growing job market, low cost of living, and relatively affordable housing make it an appealing location for tenants, increasing the demand for rental properties.

Average rent: $1854

Average home price: $470,000

Median home price: $500,000

Appreciation in the last decade: 387%

9. Bakersfield

Bakersfield is a city in California’s Central Valley that offers affordable rental properties for investors. The low cost of living in Bakersfield makes it desirable for renters, providing investors with a stable tenant base. The city is also experiencing population growth, driving up demand for rental properties.

The city has a diverse economy with major industries such as agriculture, oil and gas, and healthcare, providing stable job opportunities for its residents. This has helped to keep the unemployment rate low, making Bakersfield an attractive location for rental property investors.

Average rent: $1,500

Average home price: $370,000

Median home price: $375,000

Appreciation in the last decade: 180%

10. Fresno

Fresno is a city in central California that offers affordable investment opportunities for rental properties. Additionally, Fresno has relatively low property taxes and a low cost of living, further increasing rental property profitability in the city.

Fresno is the fifth-largest city in California, and its economy is driven by industries such as agriculture, education, healthcare, and logistics. The city’s job market is relatively strong, with an unemployment rate of 8.1%, making it a viable location for rental property investors.

Average rent: $1,500 monthly

Average home price: $357,000

Median home price: $409,000

Appreciation in the last decade: 223%

• It is important to note that the costs associated with investment property can vary significantly from city to city, so investors need to do their due diligence and research thoroughly before investing in the California market.
• Finally, it is important to keep an eye on the competition and do your research when pricing your rental property. With the right strategies, investors can purchase and manage California real estate market property.

By following these tips and researching the best places to buy a rental property in California, investors will be well-equipped to make successful investments that yield a steady income.

To build wealth and achieve financial security, consider investing in real estate. Investors can capitalize on California’s booming economy with the correct information and strategies.

Long-term vs. Short-term Rental in California 2023

In California’s highly competitive rental market, investors can invest in either long-term or short-term rentals. Long-term rentals typically involve leasing a property for six months or longer, while short-term rentals can range from a few nights to several weeks. Each option has its own benefits and drawbacks, and investors should carefully consider their goals and financial situation before deciding.

Long term rental

• Long-term rentals can provide a reliable source of passive income for investors, with tenants typically paying rent on a monthly basis.
• The median rent for an apartment in California is $1,750 per month as of April 2023, with some areas like San Francisco and Los Angeles commanding even higher rental rates.
• Long-term rentals also offer the stability of having a consistent tenant, reducing the risk of vacancies and turnover costs.

Short term rental

• Short-term rentals, also known as vacation rentals, can offer significantly higher rental rates and the potential for higher ROI.
• The average daily rate for a vacation rental in California was $246, with some areas like Lake Tahoe and Santa Barbara commanding even higher rates.
• Short-term rentals can also offer flexibility for investors who want to use the property for personal use during certain times of the year.

However, short-term rentals come with their own challenges, including higher turnover costs, stricter regulations, and the need for more frequent maintenance and cleaning.

In recent years, cities and municipalities throughout California have implemented stricter regulations on short-term rentals, with some cities like Santa Monica and West Hollywood banning vacation rentals altogether.

Ultimately, investing in long-term or short-term rentals will depend on the investor’s goals, financial situation, and willingness to take on risk. In either case, investors should carefully research the local rental market and regulations and work with experienced real estate professionals to identify promising investment opportunities.

High Rental Demand and Increasing Rental Prices

• California’s rental market has experienced high demand and increasing rental prices, with the average rent by year in California increasing faster than any other state (excluding the District of Columbia).
• The 2022 Fair Market Rent for a 2-bedroom apartment in California was $1,538, up 105.89% from 2000.
• The surge in rental prices is driven by a strong economy, population growth, and a shortage of available housing. San Francisco and Los Angeles have seen exceptionally high rental demand, with low vacancy rates and rising rental prices.
• The state’s strong economy and job market have attracted many young professionals and families who prefer renting over buying, while population growth has put a strain on the housing supply.
• The high rental prices provide significant opportunities for investors in the rental market. The high demand for rentals in California is expected to continue, driven by population growth and the shortage of available housing.

Return on Investment Properties

California’s real estate market has long been considered one of the most lucrative investment opportunities in the United States.

In recent years, the state has seen a surge in property values, particularly in the major metropolitan areas.

However, for investors considering California real estate, the return on investment (ROI) can vary widely depending on several factors, including the type of property and the location.

One key consideration when investing in California real estate is the rental market.

• Many investors choose to purchase properties with the goal of renting them out, either as long-term or short-term rentals.
• In some areas, such as San Francisco and Los Angeles, the demand for rental properties is high, with a large population of young professionals and students needing housing. This can lead to high rental rates, ranging from $2,700 to $3,300 monthly, and a strong ROI for landlords.
• However, in other areas of California, the rental market may be less robust, with lower demand and higher vacancy rates. In cities like Fresno and Bakersfield, investors may need to be more strategic in their rental property investments making average rent per month to be around $1,500. They can focus on areas with high growth potential or strong job markets to attract renters.

Another factor to consider when calculating ROI in California real estate is the overall appreciation of property values.

• While the state has seen an impressive 17.5% yoy increase in property values after COVID-19, there is no guarantee that these trends will continue.
• Investors should carefully research the local real estate market and consider factors such as population growth, job market trends, and economic forecasts when making investment decisions.

Ultimately, the ROI in California real estate can be significant, particularly for savvy investors who are able to identify promising properties in high-demand areas. However, as with any investment, there are risks involved, and investors should carefully weigh the potential returns against the potential risks before making a decision.

By staying up-to-date on market trends and working with experienced real estate professionals, investors can maximize their chances of success in California’s competitive real estate market.

Benefits to Buy Rental Property in California

Investing in rental property has many benefits, including the potential to build long-term wealth and generate steady income.

California is ideal for rental property investments due to its diverse population, vital tech hub, and year-round weather.

In addition to being a great place to live and work, California is also a great place to invest.

1. According to recent data, California’s median home sale price was $728,000, and the median rent was $1750 monthly in the past year. This makes California one of the most competitive rental markets in the nation, providing an opportunity for budget-conscious buyers to turn a profit.
2. Furthermore, California’s cost of living is significantly lower than it once was, making it more affordable for people to live and work here. This increase in affordability is an excellent opportunity for buyers looking to invest in rental property, as it can provide a steady stream of income.
3. With its strong real estate market and high property values, California offers attractive investment opportunities for those looking to diversify their investment portfolio despite its relatively high rental rates and one of the lowest property taxes in the US, which stands much below the national average, 1.1% in the past year.

Factors for a Great Real Estate Market in California

When it comes to investing in rental properties, several important factors must be considered. Here are a few tips for successful investing in California:

1. Research the Local Market

• Understand local trends and neighborhood amenities
• Utilize online tools to research rental prices and availability
• Visit the area and conduct a thorough walkthrough of potential properties

2. Understand Rental Laws and Regulations

• Familiarize yourself with rental laws and regulations in your state or county
• Research tenant rights, eviction laws, and fair housing regulations

3. Consider the Costs of Buying & Maintaining a Rental Property

• Calculate expenses such as taxes, insurance, repairs, and professional fees
• Factor in any hidden costs associated with owning rental property, such as vacancy rates or tenant damage

4. Understand Taxation Laws

• Familiarize yourself with taxation laws and regulations in your state or county
• Research deductions and credits available to rental property owners

5. Utilize Professional Services

• Consider hiring a professional such as an accountant, real estate lawyer, or property manager for specialized advice on renting properties

Understanding the California Exodus: Population Decline and Reasons for Outmigration

California has experienced a recent population decline, with more people leaving the state than moving in.

• However, it’s important to note that California’s overall population is still growing, albeit at a slower rate than in previous years.

According to recent census data, California’s population increased by only 0.05% from 2019 to 2020, which is the slowest rate of growth in recorded history. Meanwhile, the state’s net migration rate (the difference between the number of people moving into and out of the state) was negative for the first time in over a decade.

There are several reasons for the outmigration from California.

1. One of the most significant factors is the high cost of living.
2. Housing prices in many parts of the state are prohibitively high, which makes it difficult for many people to afford to live there.
3. Additionally, California has some of the highest taxes in the country, which can make it less attractive for businesses and individuals.
4. Another factor is the state’s regulatory environment. California has some of the most stringent environmental and labor regulations in the country, which can be challenging for businesses to navigate. This can make it difficult for businesses to thrive in the state, which can lead to job losses and, ultimately, outmigration.

Despite these challenges, there are many reasons to be optimistic about the future of California.

• The state has a highly educated workforce and a vibrant tech industry, which are both significant drivers of economic growth.
• Additionally, California is home to some of the most beautiful natural landscapes in the country, which makes it an attractive destination for tourists and new residents alike.

In conclusion, while California has experienced a recent population decline due to high costs and regulatory challenges, the state is still growing overall. With its highly skilled workforce and natural beauty, California remains a desirable place to live and work.

The Golden State of Real Estate: Profiting from Increasing Property Values in California

California is often called “The Golden State” due to its rich history of gold mining.

• However, the state has also become known for its thriving real estate market, which has significantly contributed to its economic success in recent years.

Property values in California have been increasing rapidly, making it an excellent place for investors to make money in the real estate market.

• Experts predict that median home prices in California will rise between 15 – 25% by the next 5 years.
• This indicates that the real estate market in the state is likely to continue its upward trend.
• This also means that investors who buy property now are likely to see significant returns on their investments in the future.

One of the reasons for the rise in property values in California is the state’s high demand for housing. There are many qualities that attract people to live and work in California; some are:

• desirable climate
• diverse culture
• job opportunities

This has resulted in a housing shortage, driving up prices due to supply and demand.

Investment Property Loan with No Personal Income Verification

Traditional mortgages usually require personal income verification, which can be a challenge for investors who may not have a steady W-2 income or want to limit their tax liability.

Non-QM (non-qualified mortgage) loans can be an option for investors who need more flexible lending criteria.

• Non-QM loans do not meet the standards set by the CFPB’s Qualified Mortgage (QM) rule.
• Examples of non-QM loans include bank statement loans, asset-based loans, and no-doc mortgages.

1. Bank statement loans allow borrowers to qualify based on bank statements rather than W-2s or tax returns.
2. Asset-based loans are secured by the value of the purchased property rather than the borrower’s income or credit score.
3. No-doc mortgages are loans that don’t require extensive documentation of the borrower’s income or assets.
4. Investors can also consider DSCR loans in California, which they can qualify for based on the property’s cash flow rather than their personal income.

If you want to know more, then here are 7 investment property loan options.

It’s important to note that non-QM loans typically have higher interest rates and fees compared to traditional mortgages.

Conclusion

In conclusion, investing in rental property in California can be a profitable venture for those willing to do their research and make smart decisions. Some of the best places to buy a rental property in California include San Francisco, Los Angeles, San Diego, and Sacramento. However, it’s important to keep in mind that each market has its own unique characteristics and challenges.

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