Best Places to Invest in Rental Properties in California

This blog post has been updated May 2014 for freshness and accuracy

When it comes to real estate investing markets, there’s a long list of states currently experiencing booms in popularity. While Texas, Florida, Arizona, North Carolina, and more are all fantastic areas to look for new properties, California seems to top them all in sheer volume and continues to draw people from all over the country — both to live and invest.

This article covers the ten best places to buy rental property in California and backs it up by data. Let’s take a look. 

The Background of the California Real Estate market

California has been the most populous state in the country for 60 years and has dense city centers like Los Angeles, San Diego, and San Francisco. Its allure and crowded population have led to some of the highest housing prices in the United States as well, making it one of the most eye-catching states for real estate investors.

Why is California so popular?

The stereotype of California (particularly LA) seems idyllic, with beautiful beaches for miles, perfect weather year-round, and fame on every corner. While this can vary a lot depending on where you are in the state, California has always been a melting pot of cultures and ideas and has become a hub of some of the biggest employers in the country, particularly in technology.

California also has a huge agricultural economy that produces a massive variety of foods that make it a foodie’s dream. The state is also home to more national parks than any other, and has countless different climates, environments, and sights to see. As the Golden State attracts so many tourists and job seekers, loans for California investment properties are in high demand. 

10 Best Cities to Buy Rental Property in California

Several California cities have been trending upwards in terms of rental investing value. While they didn't make our top cities in the country for real estate investing, there are still plenty of exciting opportunities for investment properties in California. This is why it's important to research and pick the right location to invest in — it could mean the difference between a successful rental and a vacant one.

Los Angeles

When most people think of California (or even the West Coast), they typically think of Los Angeles and its huge metro area. Not only is LA proper an incredibly diverse city with quick escapes to beautiful nature nearby, but it also has adjacent cities offering varied environments and characteristics to fit different investing strategies.

For instance, Huntington Beach is one of the best vacation spots in the country and is a perfect place for a new vacation rental. Hawthorne is another example of an LA metro area city with tons of value for investors due to its high renter-occupied household rate compared to the rest of California.

The California housing market is known for being very pricy, but Los Angeles County is one of the most expensive: home values in the city proper are $926,593, and the median home price is even higher at $1.2 million. Market trends consider that this explosive growth isn't going down any time soon, so it's no wonder tenants are willing to pay the comparatively reasonable monthly rent of $2,742.

A severe housing shortage is also driving up prices: the city has approved 6% rent hikes for 2024. The short-term rental market is decent, averaging a yearly revenue of $10,300 and a $147 nightly rate. Occupancy rates sit at 29%.

Anaheim

While still part of the LA metropolitan area, Anaheim is one of the best areas of California for short-term rentals due to its tourism market. Home to Disneyland and Knotts Berry Farm, this city has an incredibly high rental property demand, which leads to much higher rent (upwards of $3,000). While the initial investment might be high for any properties around LA, Anaheim rentals will have no issues recouping these costs.

The greater Orange County area is also home to a variety of fantastic attractions, such as Newport Beach, which bring tourists flocking to this area. People also use Anaheim as a good launching point for nearby San Bernardino National Forest and Riverside County, the home of the California Citrus State Historic Park.

The current Anaheim property value hovers around $844,175, up 3% year over year. This is an incredibly hot housing market, and properties are typically only on the market for 13 days. The average rent is $2,311, significantly higher than the national average of $1,702. There is enormous profit in vacation rental property, which can make upwards of $24,000 a year. You can expect a nightly income of $186 for vacation rentals, but the occupancy rate is only 37%.

Sacramento

The capital of California, Sacramento, is often overlooked and underrated. However, its high price-to-rent ratio means that most people are likely to rent rather than buy a property. This trend gives rental investors plenty of demand to fill their properties across the city. Coupled with the area's serene landscapes and surrounding vineyards and breweries, it's not hard to see why Sacramento can be a hidden gem.

Sacramento is cheaper than other places in Northern California, with an average home value of $476,984. The average home price has gone down about 3.7% in the past year, making this the perfect time to buy investment property. The average monthly rental income is about $1,856, which is still above the national average.

Vacation rental properties have lower income at approximately $8,800 a year, thanks to the daily rate of $110. Still, the occupancy rate is a bit higher than others on this list at 39%

Oakland/San Francisco

Just southwest of Sacramento lies the San Francisco Bay Area and two major cities for real estate investing. The area has a low unemployment rate, which lends itself to long-term renting.

While properties in San Francisco are significantly more expensive than in Oakland (sometimes twice as much), the city has a perpetually growing economy and job market to match these prices. If you're looking for a lower initial investment, Oakland also has great opportunities for renting to commuters or people working outside of San Francisco, especially as San Francisco has experienced a population decline.

The average home value in Oakland is $790,956, but homes can sell for up to $977,000. Its larger neighbor has an enormous average value of $1,254,436, though it has come down by over 9% in the last year.

Rents in Oakland are approximately $2,790, while in nearby San Fran, you can expect a rental income of an incredible $3,336. Surprisingly, Oakland has a lower vacation investment property income of about $7,300 per year and 30% occupancy, making long-term rentals a clear winner here. San Francisco's vacation rental income is over twice that at $15,000, with a 39% occupancy. 

Palm Springs

Palm Springs sits inland between Los Angeles and San Diego and gives an ideal balance of the California lifestyle. 

It has a luxurious atmosphere that allows for higher rent prices and plenty of high-end amenities. Palm Springs is a highly sought-after vacation destination, meaning it can serve the vacation and short-term rental market.

Lovely Palm Springs is great because the homes are a bit cheaper, making it an excellent entry point into California real estate. The average home value is $648,186, and rental income sits at $1,969, which is very respectable given its cheaper properties. Vacation rentals rule here: you can expect an incredible income of $38,900 per year, as the nightly rate is $325. The occupancy rate is also very high at 40%.

San Diego

South of Palm Springs, San Diego has plenty of entertainment — from the San Diego Zoo and SeaWorld to the Padres MLB team. The city also has a thriving art scene and over 70 miles of beautiful coastline. These factors mean the rental market is primed for further growth that investors can use.

San Diego is a high-velocity market: the typical home value is $955,846 and goes pending in just ten days. Rent is also much higher at $3,016 across all long-term rental property types. Thanks to the many entertainment options, this city has a thriving vacation investment property market, where you can net a yearly income of $24,800 and chart nightly rates of $208. The occupancy rate is also high at about 40%, making this a very high-earning market. 

San Jose

Beautiful San Jose is best known for the mysterious Winchester Mystery House, which brings thousands of tourists to the area annually, as well as the Rosicrucian Egyptian Museum. Thanks to its wonderful weather — it gets over 300 days of sunshine per year — tourist traffic is quite steady, and the city has rebounded admirably from the pandemic.

Over 970,000 people call the city home, making an incredible median household income of $125,075. This means you can command pretty high rents.

Houses are very expensive here, with a median home value of $1,330,693, and rents aren't too far behind. The average monthly rental income is $3,021, making long-term rentals an admirable option. San Jose short-term rentals bring a revenue of about $8,500 per year. The typical going rate is $105, and the occupancy rate is a bit lower at only 32%.

Fresno

In terms of investment options, this city in the Central Valley is very underrated: it's an attractive destination with quite a few interesting tourist spots, such as the Forestiere Underground Gardens and the Shinzen Japanese Garden. About 545,567 people live here, and the average income is $57,211, making affordable housing options a must. It's also experienced a slight population growth of 0.1%. 

Property prices are reasonable: the average home value is $363,928, making it one of the most promising investment opportunities in California for new real estate investors. However, rental income is also lower at $1,547. Short-term rentals perform as well as San Diego, with $8,400 in yearly income, but the occupancy rate is higher at 36%. You can charge approximately $104 per night, which is still a tidy profit.

Long Beach

The coastal gem of Southern California, Long Beach, has experienced significant growth over the past decade, at a steady rate of 1.7%. Median household incomes are very high at about $71,000, but some areas of the city have a staggering $161,000 household income.

Long Beach is home to one of the largest ports in the world. It has numerous tourist attractions, including the Aquarium of the Pacific, the haunted ship, the Queen Mary, and numerous beautiful beaches, with Junipero Beach being a favorite. 

Following the supersized budgets of its residents, property values are incredibly high at $799,165, and rents are also an impressive $2,579 per month. Those who want to purchase properties here may want to pivot toward short-term rentals, which make an average of $16,200 a year with a 39% occupancy rate. Short-term rental rates are $150 a night.

Santa Barbara

On the Central California coast lies the Mediterranean-inspired city of Santa Barbara, where people flock to the broad beaches to take in the sunset. Old Mission Santa Barbara is a well-loved tourist attraction, and many also come to see the beautiful gardens at the Santa Barbara Zoo. Santa Barbara's diverse economy includes agricultural outputs, tourism, wineries, education, and healthcare, which ensures potential tenants have plenty of employment opportunities. 

This desirable location is also incredibly pricey, with median home values of $1,766,791. Median home prices are even higher at $2.2 million. It makes sense for residents to rent, as the average rent is just $2,836. 

While traditional rental properties do very well, the tourism industry is amazing: those buying rental property for short-term vacation use can expect an annual revenue of $38,500 with an occupancy rate of 43%. In such high-demand areas, property management companies are a very helpful investment. 

Benefits of Investing in California Rental Properties

Buying rental properties in California is highly advantageous thanks to several key factors: a strong economy, year-round tourism traffic, and high property values. California's economy is so large that if it were its own country, it would be the fifth largest in the world, overtaking even the United Kingdom. It has huge industry sectors, such as agriculture, tourism, advanced manufacturing, technology, and finance. 

The high property value of $746,473 isn't expected to go down anytime soon. In fact, it has risen by 0.9% in the past year. While there is a state-wide population decline, a tight housing market ensures that the Golden State will remain competitive for years to come.

There's also the fact that tourism is big business throughout the state, ensuring passive income for investors. The wonderful climate and iconic tourist attractions, like the Golden Gate Bridge and the old Spanish missions, bring in a whopping $154 billion each year.

Even if you choose to invest outside of these cities, you still have some very admirable investment options, such as a hunting cabin by Big Bear Lake or a dreamy wedding resort near the San Bernardino National Forest. By working with a good property manager and picking your investments based on careful local market research, betting on rental property in California will always be wise.

Finance your California Rental with Visio Lending

Once you've decided where you want to buy your next rental, partner with Visio Lending for your next rental property investment loan. We offer flexible terms and have plenty of experience in the California market, closing hundreds of loans in the state over the past few years.

Contact us to get started today