The cost of living in California is higher than in most other states. This is particularly true of urban centers. In these areas, the percentage of renters rises well above the already high national rate of 36.6%. This creates an excellent real estate investing opportunity for landlords in various markets.
One market that comes highly recommended by various sources is the Bay Area. According to Rent Cafe, the average cost of rent in San Francisco is $3,733 with a year-on-year change of 3%. To add to this, only 47% of homes are owner-occupied. All the rest are occupied by renters.
Why Invest in the Bay Area
There are two factors that tend to characterize the Bay Area market. These include a limited inventory of income properties to choose from and high prices. Ironically, this is exactly what makes it one of the best areas for California real estate investing. In fact, a recent report from The Mercury News states that Bay Area income properties are well worth the investment.
It gives several reasons for this. For starters, the median prices for homes are actually falling, making it a great time to buy in. In spite of this, new home sales are experiencing the lowest monthly sales in more than 20 years. San Francisco should also see about 1,200 rental units added in the next year. This may help prices to dip even further.
Where in the Bay Area To Buy
Like any other big city, where you buy largely affects the initial capital investment needed and overall profitability. Narrowing down the areas then becomes both difficult and necessary. Thankfully, there is a lot of existing research available for real estate investors to use.
Forbes specifically recommends the Oakland area above all others. Here are several reasons for its choice:
- Growth in the working population while maintaining high employment rates
- Proximity to San Francisco, while paying about half the median price
- Median of $3,127 paid in rent per month
- A renting household percentage of 60.2%
Other California Areas To Consider
Most of the focus tends to be on buying in the Bay Area, no matter what sources you pull from. Even so, there are other regions in California worth investing in, too. Potential options include Arden-Arcade, Sacramento, Hawthorne and East Los Angeles.
For investors looking for more low-cost-high-yield investments, Southern California offers a wide range of opportunities. Some turn to 55-plus communities, while others focus on tapping into the housing market in military towns, such as San Diego and Twentynine Palms.
Why Invest in 2020
Over the past few years, the real estate market witnessed some highs in interest rates on mortgages. Throughout 2019, there was a complete reversal. Mortgage rates are not only falling, but they are expected to go even lower. Forbes estimates that at a current average of 3.75%, mortgage rates are already about 1% lower than the year before.
Note that most first-time real estate investors focus on the selling price of a home. However, what also affects the month-to-month cost of owning the home is the interest rate. Just 0.5% can make a huge difference in the monthly amount owed to the bank. This, in turn, affects how much of the rent you get to pocket as income.
For instance, consider a home that costs $700,000 at the current average of 3.75%. The mortgage would cost you a total of $1,167,051 in total over a 30-year period. During that time, your monthly payments to the bank would be $3,242. Reduce the interest rate to 3.25% and you pay back $1,096,720 during that time at $3,046 per month. That’s an extra $2,325 back in your pocket every year just by getting a lower-interest loan.
Invest In California Income Properties
Are you ready to invest in the California market while interest rates are still low? We strongly recommend starting off with the Bay Area for those who can afford the initial capital investment. There are also more affordable areas that provide excellent opportunities to start small and grow.
Regardless of the area you choose, you’ll need landlord insurance to protect your investment. Insurance by Castle is one of the top choices in California for landlords. For more information, reach out to us at 800.644.6443.