2022 Top California Cities to Buy and Hold Investment Properties in California
As one of the largest states in the United States, California covers a wide range of climates, cultural preferences, and, of course, real estate markets. From beaches stretching from the Mexican border to forested areas near the Oregon border, to the rolling hills of Napa Valley, to desert climates further inland, there are plenty of places to buy and hold rental properties in the Golden State. However, in 2022, some markets are better than others. These are some top cities for buy and hold investment properties in California – and why.
Factors to Consider
A lot of elements go into assessing an area for investment activity, from the state of the current market to the potential for economic growth. Before moving into any real estate market, it’s important to evaluate and analyze the factors that could potentially drive success – or failure.
After a tumultuous few years with the pandemic and a subsequent tight housing market, the state of real estate in California, in light of rising interest rates, is starting to normalize. Despite this, rents are still on the rise, promising big returns for investors who are savvy about where they spend. This pricing isn’t the only area to consider, however; other elements can play into the current and future vitality of California cities.
A burgeoning employment climate can also weigh into determining an ideal place to invest. With more jobs comes more renters, and that means more competition. This is especially true in areas with young employees, who are more likely to seek rental accommodations versus buying homes. Luckily, California is a in a good place; as one of the top states in the United States for job prospects, experts expect growth of around 25% in 2022.
Some investors are hesitant to break into California due to the reputation for sky-high taxes, but Proposition 13 has mitigated some of this worry. With property taxes limited to just 1% (plus Mello Roos in some areas) of the total value of the home, property owners in California no longer have to worry about their taxes hurting investment returns after purchasing a property.
The Top Cities to Buy and Hold
With numerous large, vibrant metro areas across California, it is not surprising that some real estate investors, even seasoned investors, are not always sure where to focus business endeavors. While different investors will have different preferences, these are four of the best California cities and regions to buy and hold real estate, no matter what property goals you want to achieve or your ideal portfolio.
As shouldn’t be surprising to most investors, the greater Los Angeles area is consistently a winner for those comfortable investing in more expensive real estate. Despite complaints about urban sprawl and high costs of living, Los Angeles will always be appealing to those who see a future in show business. Nowhere else in the country can offer the same opportunities for actors, musicians, filmmakers, directors, and anyone else with Hollywood in mind. Los Angeles also provides numerous opportunities for mother high-paying professions such as banking, law, medicine, and technology. And, as such, countless new prospective renters move to the area every year. Rental prices are sky-high, too; a typical renter pays over $2,700 for an apartment averaging less than 800 square feet. This is also true for smaller metros close to LA, like the comfortable town of Hawthorne.
In addition to offering ample opportunities for those looking for young, hungry renters, the charming coastline in the area are top destinations for vacations. With so many beautiful beaches to consider, buying a property with short-term rental aspirations can be another way to capitalize on the draw of the area.
Anaheim is technically part of the greater Los Angeles area, but has a lot to offer on its own – provided you’re interested in catering to the short-term rental market. Anaheim is home to Disneyland, one of the most popular vacation destinations in the world, one is also close to Knott’s Berry Farm. While short-term rentals can be harder to navigate, especially as the hunt for renters is a non-stop endeavor, rental income can exceed those renting to individuals and families via a conventional long-term lease.
As always, investors should focus on their long-term goals rather than what seems like the easiest source of income; a short-term strategy won’t be right for those who want a steady and reliable income stream. Those considering this path should also be aware of the laws surrounding Airbnbs, VRBOs, and private vacation rentals.
The Bay Area
The Bay Area is known for its desirable weather, its gorgeous hills, and, of course, a very expensive housing market. Rivaling New York City as the most expensive place in the country to live, San Francisco, though more reasonable since the pandemic, can be out of reach for many residential buyers. While this does mean a sky-high initial price for investors, it also means very lucrative rental opportunities, especially as many residents are priced out of purchases. While purchasing may not be attainable for many residents, renting is within reach. Wages are on the rise in this area as well, with an average increase of around 18% in 2021 alone. This is especially true as companies are forced to offer more competitive compensation due to the ramifications of the “Great Resignation.” With more available cash flow, renters can put more money into housing opportunities.
While many people focus exclusively on San Francisco when considering the Bay Area, Oakland is a viable rental community as well. This is particularly true as San Francisco becomes increasingly expensive, and area renters are looking for more affordable alternatives to call home. If your budget for investments isn’t quite up to the cost of San Francisco, Oakland may be a great compromise that still serves those with high incomes and larger budgets.
Despite being the state capital of California, Sacramento is often overlooked in favor of its flashier city siblings. However, this doesn’t mean that Sacramento isn’t a compelling city for those considering buying and holding property. With a high price-to-rent ratio, it’s far more common for the residents of Sacramento to rent rather than buy.
Sacramento hasn’t always been a popular city, and thus was known for its low home prices, but as the area has gentrified, this has begun to change. Today’s Sacramento is home to scenic views, craft breweries, and trendy restaurants, and, of course, its proximity to vineyards has made this city far more desirable than ever before. And, after home prices dropped during the start of COVID, the recent resurgence has made now – a time when pricing is starting to rise – one of the best possible times to get involved. In addition, with the rise in “Work From Home” in companies across California and nationwide, more people are staying in comparatively affordable areas like Sacramento rather than relocating to places where larger companies are headquartered. This will keep young professionals and new families in the area – those most likely to rent – versus driving them into bigger metros with more jobs.
As one of Southern California’s southern-most cities, San Diego is a prosperous and popular area with a wealth of opportunities for residents and investors alike. With numerous attractions, like the San Diego Zoo, SeaWorld, Balboa Park, and gorgeous beaches, San Diego is an attractive city for hundreds of thousands of people – and their rental expenditures.
Like Los Angeles, San Diego is expensive and only getting moreso, but the consequences are the same: fewer people buying homes and more people renting. And, like LA, wages are on the rise at a rate faster than many other areas of the country, making nicer rentals more accessible for all kinds of potential tenants. This trend is likely to continue, priming this beloved area on the California coast for substantial opportunity for investors. Both long-term and short-term rentals prosper in this area as well, which bodes well for those with a wide range of investment aspirations.
Owning rental properties in California can be tricky due to the high costs of living and the wide variety of climates, attitudes, and markets, but for those in the know, there are plenty of places to put your money in hopes of great results. Whether you want to cater to up and coming Hollywood starlets or take advantage of the higher rise in wages in the greater Bay Area, there’s a good fit for all kinds of investors – especially experienced property owners who understand what it takes to attract renters, both short-term vacationers and long-term tenants, and turn a steady return.
Westpark Loans is a nationwide, direct hard money lender. See our Loan Programs and how Westpark Loans can help you fund your next loan with a loan program that works for you! View our Success Stories, Reviews, and learn more About Us. Or, call to speak to a professional Loan Officer at 844-574-5626 today!