Home sales are slowing down: single-family home sales have dropped by 11.9% year-over-year, mostly due to a lack of inventory. Statewide, there has been a 27.2% decline from October 2022 to October 2023, thanks to a severe housing shortage. This has pushed prices up, with October being the most significant jump year-over-year again in the last 17 months.
Interest rates are dropping, which is great news for investors, but it's likely that many prospective homeowners will struggle thanks to a sharp increase in inflation. While California's economy has experienced only modest growth, and population growth has slowed because of the notorious California exodus, it's still a supercharged rental market for those who invest in real estate.
When buying rental property in California, you have numerous different choices, each of which can net you a tidy rental income. Both long-term and short-term rentals are a powerful option — let's take a look at each choice.
California is a beloved vacation destination, from the warm surfing sites of Huntington Beach in southern California to majestic San Francisco in northern California, so you can be assured a great return on investment when you buy short-term rental property in the right area. Various groups contribute to the increased demand for vacation homes, from families visiting Anaheim for Disneyland to remote workers fleeing Silicon Valley for a comfortable Riverside County retreat.
Real estate investors love multiunit properties because they are generally a more stable investment: even if one unit remains vacant, you'll still be getting positive cash flows from your other tenants. They are also in high demand in prime locations like the Bay Area, where the median home price is far too high for most to purchase their own home, but the attractive lifestyle and high salaries are too good to pass up.
While California is known for its major cities and their high-rises, there are also ample opportunities for one-unit rentals in the smaller towns. Because property values are so high, many younger families are pushed out of the housing market and are seeking affordable housing in small, safe areas like Douglas City. A three-bedroom can get you a median rent of $3,695, which can more than justify the price.
At Visio Lending, we offer flexible 30-year loans for vacation properties and 1-4 unit single-family rental properties, including condos and townhomes, such as:
Our investment property loans for rented or rent-ready real estate throughout California are tailored to investors with:
Visio Lending strives to deliver the fastest, simplest and most dependable mortgage financing to enable investors to grow their real estate portfolios, improve cash flow and build wealth.
California boasts many hot long-term rental markets, including Oakland, Douglas City, Sacramento, Santa Barbara, Long Beach, and Fresno. With all of its natural beauty and tourist attractions, California is also a great state to buy vacation rental property and has many vacation rental-friendly cities.
In fact, AirDNA ranked several California cities as the Hottest Short-Term Rental Cities in the US in 2023, including San Diego and Anaheim, which are in the top 20. Other popular options include Palm Springs, South Lake Tahoe, and Big Bear Lake.
Despite the fact that median home prices are well over $1 million, Santa Barbara has a lot to love for long-term renters: the many cultural attractions, excellent schools, and diverse array of employment opportunities make it one of the best cities in California for young families as well as retirees. Home values have appreciated by over 200% in the past decade, and rent prices are a very impressive $2,836.
This cooler California real estate market is an excellent choice for newer investors who aren't quite ready for places like Orange County or Los Angeles County. California's capital has a 16% lower cost of living than the rest of the state. At the same time, its growing economy has added over 24,000 jobs in the past year. The modest home price of $467,948 is paired with a respectable average rent of $1,856, assuring a good return on investment.
Fresno is also a very well-priced local market with an average home price of $363,928, resulting in average rents of $1,547; properties have appreciated by 223% in the past decade, and market trends suggest that this is likely to continue. The low cost of living — 24% below the state average — has led to a steady influx of new residents, with the city growing by 1.15% since 2022.
The entire state has a strong demand for short-term rentals, as the tourism industry is very well-developed. While a short-term rental real estate investment will do well in nearly any area of California, these three are the proven winners in the Golden State thanks to certain key factors: timeless appeal, a steady stream of tourists, and robust economies built on leisure.
This sunny city is close to the Joshua Tree National Park and the world-famous Coachella Valley, netting it a huge volume of tourists per year. In addition to concertgoers and adventure buffs, many snowbirds take advantage of its warm climate to vacation over the winter. Other investors have found meteoric success here: short-term rental income is $38,900 annually, with nightly rates of $325 and a 40% occupancy rate. The median home price in Palm Springs is $896,000.
South Lake Tahoe is perennially beautiful — and popular. Short-term rental demand is high here, thanks to the fact that over 15 million people visit Lake Tahoe every year. South Lake Tahoe isn't quite as productive as Palm Springs, making an annual revenue of $33,200 and a nightly rate of $291, but the properties are also a little cheaper, with a median home price of $723,500.
Big Bear Lake is a very popular spot for people from Los Angeles County, Orange County, and even Las Vegas, and it also has very low property taxes. Over 3 million people visit this small town every year to enjoy the dramatic Sierra Nevada mountain range and the relaxing atmosphere, many of whom choose to stay the night. The median home price is a reasonable $650,000, making it a very well-priced investment.
While the annual vacation rent revenue is a bit lower at $27,800, the nightly rate is higher than South Lake Tahoe at $313. This suggests that, with the help of a competent property management company, you can boost the profitability of your investment property well above this median.
Visio Lending is the leading private lender to Florida residential real estate investors.
Visio Lending is the nation's premier lender for buy and hold investors offering, long-term loans for SFR rental properties, including vacation rentals.