Whether you already own property in California or are considering expanding your real estate portfolio into new states, opportunities abound in the Golden State. From rental properties to commercial investments, by investing in the real estate market, you can build passive income and diversify your assets at the same time.
What to Consider When Investing in the Real Estate Market
When considering new areas for investment, there are a number of factors to consider. First, look for a relatively high price-to-rent ratio. This indicates that the area is more of a renter’s market, and finding tenants shouldn’t be a challenge.
Also consider the regional population and look for growth because there will be an influx of people who need housing. Renters evaluate the neighborhood characteristics for single-family rentals, so you should too. Look for homes in areas with good schools, proximity to jobs, and good safety records.
If you’re interested in adding short-term rentals to your portfolio, look for an area with a healthy tourism industry. However, many places in California have restrictions on short-term rentals, so it’s important to thoroughly research any area you are considering for this purpose.
The type of real estate you choose to invest in will be informed by your goals. Both long- and short-term residential rentals require more oversight and involvement, but you can hire a property manager. Higher turnover requires more effort, and you are generally responsible for maintenance tasks.
With commercial real estate, you generally have longer-term tenants and the tenant typically agrees to cover a certain amount of maintenance. However, it can be more difficult to get a loan if the space is unoccupied or needs improvements.
The main objective of real estate investing is getting a return, so it’s important to keep this in mind when evaluating properties. Consider the purchase price, maintenance costs, and rental market to make sure you can generate enough revenue to get the returns you desire.
Best Areas to Invest in the California Real Estate Market
A recent report from ATTOM indicates that single-family rental yields are on the rise, with some of the largest increases in California, including:
- Orange County: Up 42.7%
- San Mateo County: Up 41.6%
- San Francisco County: Up 38.1%
This increased potential for returns makes these areas very attractive to real estate investors.
The Bay Area
San Francisco has a high proportion of renters (65 percent) compared to 45 percent in other regions in the state, according to the San Francisco Planning Department’s latest report. Plus, property taxes are relatively low, which is good for long-term real estate investing. However, the cost to invest is relatively high, so this might not be the place for first-time investors or those who don’t already have a lot of starting capital to start. Consider partnering with other investors to enter a high-cost market.
If you’re looking for a more affordable place to invest, the Central Valley region—which includes Sacramento, Fresno, and Bakersfield—has ample opportunities. People relocating from more expensive areas keep the rental market active. As the area continues to grow and attract new residents, it is well positioned for investment in rental properties with the potential for a high ROI down the road.
With one of the highest long-term rental return rates in the state and a relatively high price-to-rent ratio, Redlands is an ideal location for investing in long-term rental properties.
Not far from Redlands, Riverside also offers opportunities for both short- and long-term rental investment, with long-term rental returns of 2.86 percent and a short-term rental return rate of 4.92 percent. If you’re looking for versatility with your investment, Riverside could be a good choice for you.
Commercial Real Estate in California
If you’re more inclined to invest in commercial real estate, look for areas with a strong economy, bustling industry, and large populations, such as Sherman Oaks, Thousand Oaks, Simi Valley, and Pasadena. If you're already familiar with and comfortable with single-family rentals, you can start with a multifamily (five-plus units) apartment complex. Otherwise, consider what kind of commercial property you would be interested in, such as retail, office, or industrial properties.
Get Financing with Socotra Capital
No matter where you choose to invest in California real estate, Socotra Capital is here to help with hard money loans for residential and commercial investment properties. Unlike conventional banks, we’re not subject to stringent regulatory restrictions, which means we can be more flexible with the types of properties we’re able to finance. We’re also able to act much faster than traditional banks, so if you’re competing against other investors, a hard money loan may be the best option.
To learn more about investing in real estate, download The Ultimate Guide to Navigating the Real Estate Market in Any Economic Season.
Then, apply online to get started today.