Investing in California Real Estate
When it comes to investing in California Real Estate, some people have become hesitant to do so. Housing costs have risen, and thousands of people started moving away in 2019. This has earned the Golden State its reputation for expensive real estate.
But one thing real estate investors should know is that the housing market in California has slowly started picking back up, with more buyers reconsidering the rent vs buy conundrum and Californian rental properties remaining very popular.
Although real estate rental prices are still expensive, an investor can still gain a positive ROI in California.
Keeping an eye on these trends can help you make the right investment decisions.
Benefits of Investing in California Real Estate
Californian real estate can offer a wide range of opportunities for investors, especially those who are interested in single-family real estate investing.
The state is filled with gorgeous beaches, year-long recreational opportunities, an enthusiastic culture and a growing population, making it a good opportunity for many people.
At the same time, investors who are more interested in making a profit can expect significant returns from the increasing value of real estate.
According to the California Association of Realtors in June 2022, the median price for Californian real estate reached $863,790. This was an increase of 5.4% on June 2021 however there was a sharp drop in the number of single family homes sold in that time of 20.9%.
California's Department of Finance reported that the Gross State Product in 2021 was $3.356 trillion which, if it was a country, would make it the 4th largest economy in the world after the USA itself, Japan, and Germany according to the OECD's GDP valuations.
So by investing in California rela estate you are actually investing in the world's 4th largest economy.
Considerations for Investing in California Real Estate
An investment is not a decision you should take lightly. There are different variables that need to be taken into consideration first; variables that you can find present in the Golden State.
Strong job growth market
The best places to invest are always the ones with high employment and numerous career opportunities. One of the many advantages of California is that 50 of the Fortune 500 companies can be found here, such as Apple, Intel, Google, and Disney among others.
This puts California in a position for high job growth. According to the Bureau of Labor Statistics the unemployment rate in California was just 4.2% in June 2022.
The higher the employment in a certain area, the more it attracts renters and buyers, enhancing the chances of consistent cash flow for investors.
Low mortgage rates
Mortgage rates are also something you need to consider for your real estate. As at Friday July 29th according to Bankrate California's 15 year fixed mortgage rate was 4.67% and 30 year fixed was 5.36%, and flexible was 3.94%.
The volatility of interest rates is something that investors should keep a close eye on as it can make a drastic difference in the final interest that you would have to pay.
You can save a lot of extra money by taking advantage of lower mortgage rates and entering the housing market at just the right time.
Low property taxes
Property taxes can also affect your overall expenses and cash flow, which is why that should hold huge weight in your investing decisions. Although it isn’t the lowest in the country, the Proposition 13 law being imposed definitely helps a lot.
General tax properties are now no longer allowed to exceed 1% of the property’s total market value, with the yearly increase being limited to 2% which you can read about in this report.
This is always something you should consider because it determines the favorability of your investment returns. With California being the land of opportunity, many people flock here for jobs, entertainment, leisure and many other activities.
People would think that rental prices need to be decreased to attract more renters but in the case of the Californian real estate market, this does not apply.
This consistent demand often outpaces the availability of resources and growth in several Californian markets. But demand as high as this can also result in increases in rental rates that will then lead to higher returns for investors.
Data collected by Comparably showed that Californian landlords earn an average annual income of around $61,920.
Demand wouldn’t be present if people do not see any home value in the real estate. When you own a rental property, your main goal is to have someone renting it constantly in order to generate profit and keep cash flow consistent.
It’s important to invest in a place where you know people would want to live in. This means an area with plenty of nearby community amenities, a decent school district, a low crime rate, and easily accessible public transportation.
The combination of a fun lifestyle and consistent job growth in California is what’s consistently raising the value of homes in the state.
People spend money on where they want to live and there’s no doubt that millions of people would prefer to live in California. Take advantage of this consistent demand and make smart investing decisions.
Best Places for Investing in California Real Estate
To assure consistent and high returns on your investment, it’s important to determine first in which cities the real estate market thrives.
California, in general, has numerous good real estate investment opportunities found throughout the state. However, this list narrows that down and showcases the different communities that offer the best neighborhood character, safety, schools, job opportunities, and other factors that homeowners and renters would consider when choosing a place.
- San Jose/San Francisco/Oakland – renter wages increased by only 3.8%, below the national average of 5.0%.
- Los Angeles/Long Beach – renter wages increased by 5.6% in the year to March 2022.
Wages increase taken from March 2022 Bureau of Labor Statistics compensation costs report.
Despite everything that has happened in the past couple of years, California still makes a strong case for itself as the best place to make real estate investments.
Even with somepeople leaving during the Covid-19 pandemic, the effect it had on the real estate market hasn’t been too drastic.
To this day, the Golden State still continues to attract multi-million companies and individuals who are able to keep the value of real estate promising and attractive to investors.
The LA Times reports that some experts predict that 2022 will see a 9.7% increase in Californian property prices, which is far below the near 20% growth in 2021.
Overall, when investing in California real estate remember to keep an eye on price to rent ratio and as much as possible stay in the middle of the renter market where the largest concentration of renters are found.
This way, you won’t struggle to find replacements once your previous renters decide to leave.
There’s no doubt that California is a good place for investing in rental property but even with the high assurance of investment returns, it still pays to be careful.
You might be also interested in Why is My Truck Registered as a Commercial Vehicle in California? and Cash for Keys Los Angeles