Investing in real estate on the West Coast is not something investors and business-minded folks should take lightly. Properties in California are quite expensive and so is the cost of living. Before one pulls the trigger, he or she first needs to identify the best real estate market in California that aligns with his or her investment goals.

However, despite the high standard of living in CA, it is still possible for real estate investors to find the best rental markets in California that will give them great returns. 

Investing in the Best Rental Markets in California

Investing in the Best Rental Markets in California

The late great Tupac Shakur once quoted old-school hip hop artist Ronnie Hudson: “California knows how to party.” And party, indeed, is what California is known for. The term wild west takes on a whole different meaning when it comes to the Golden State. 

It may be commonly known for its Hollywood glitz and glamour but California has a whole lot more to offer. This makes investing in the best rental markets in California a very wise and rewarding move for real estate investors. 

The California Real Estate Market 

Folks who want to get into California real estate investing need to understand what they’re getting into. 

First, it’s no secret that California is one of the most expensive states to live in. This includes the housing market. Real estate is quite expensive in the Golden State because there’s just not enough housing to go around given the very high demand for property. 

Second, given the lack of supply, CA is one of the more expensive states to build houses. Don’t think that nobody ever thought of building more homes to meet the ridiculously high demand. The state housing department claims that they need to build 180,000 houses every year just to meet the demand. This is a very big challenge to developers because the cost of labor and materials in CA is also very expensive. And while they did attempt to hit the 180,000-mark, they were only able to pull off half of it at best. 

Third, even if CA developers churn out 180,000 houses yearly, there’s just not enough land available. Even if it is the third-largest state by size, a huge portion of CA is made up of hills and mountains spread across the harshest deserts. Almost every suitable parcel of land has already been used. 

Fourth, stricter building codes and a push for more environmentally-friendly homes have made already high construction costs even more expensive. 

Given all of these factors, one would probably think of giving up on real estate investing in the state. However, despite all these setbacks, it is still quite possible for an investor to make a good return on investment as long as they know where the best real estate investments in California are found. 

Why Are Real Estate Investors Attracted to California?

Despite the financial, geographical, and physical challenges of owning a California property, why do investors keep coming back? 

  • Vibrant and thriving economy. California is home to several Fortune 500 companies, including Disney, Google, Apple, Intel, and Oracle. The increase in demand for their products and services means that growth is inevitable for these companies. This translates to business expansions and more job opportunities. The low unemployment rate means that landlords and property owners have greater security since tenants can make timely payments. It also makes the state very attractive for professionals and families to move to. 
  • Very strong tourism. It should come as no surprise to find out that CA attracts millions of visitors annually. Entertainment hotspots, amusement parks, white sandy beaches, perfect weather, beautiful people, awesome activities, and a whole lot more bring in huge revenues in local tourism. This makes the idea of investing in short-term rental properties a lot more attractive to investors in and out of the state.
  • High property demand. As we already mentioned earlier, there is a very high demand for property in California and very little room for expansion and new development. With professionals coming in the thousands daily looking for better job opportunities, rental properties are at a premium in the state. Investors just have to look for the best housing markets in California that will help them achieve their goals. 
  • Favorable tax rates. CA may be an expensive state to live in but compared to other smaller states like Washington and New Jersey, the state’s property taxes are friendly to landlords. The low tax rates help improve an investor’s cash flow making it one of the reasons why California is a great place to invest in. 
  • Property Value Appreciation. Generally, real estate is a sound investment because land will almost always appreciate over time. However, a wise investor knows where to look for a property that will reap greater financial rewards. Given the different factors that affect California real estate, the appreciation rates are much higher compared to other states. 

The Top Markets for Investors

While there are several sound investment strategies for real estate investors, we will focus on the rental aspect of investing. Based on the data found on Mashvisor.com, we have come up with this list of ideal markets for traditional and short-term rentals. 

Take a look at each of them and see if it is the best housing market in California for you. 

6 Best Markets for Traditional Rentals

Here are the best rental markets in California where traditional rental is concerned:

1. Los Angeles, Los Angeles

  • Median Property Price: $1,422,803
  • Average Price per Square Foot: $811.68
  • Days on Market: 92
  • Listings: 15,312
  • Traditional Rental Income: $4417.02
  • Traditional Cash-on-Cash Return: 1.73%
  • Price-to-Rent Ratio: 26.84 (high)
  • Walk Score: 55.32

Surprise, surprise. The City of Angels is at the top of this list of the best rental markets in California. And why not? Other than being home to some of the biggest celebrities, it offers its residents a great work-life balance with its various escapes to nature very nearby. People continue to move to L.A. in search of building a career outside of the conventional 9-to-5s. Its population is so diverse that folks are treated to a wide array of gastronomic delight and vibrant cultural communities. Those who have a strong inclination to the arts and creatives and the entrepreneurs will find their own place in Los Angeles. 

2. Murrieta, Riverside

  • Median Property Price: $737,112
  • Average Price per Square Foot: $333.05
  • Days on Market: 53
  • Listings: 287
  • Traditional Rental Income: $2,504.13
  • Traditional Cash-on-Cash Return: 2.06%
  • Price-to-Rent Ratio: 24.53 (high)
  • Walk Score: 99

Its growing economy and pleasant weather make Murrieta an attractive place for investors. Its current unemployment rate of 6% is expected to go down as its job growth rate is predicted to hit as high as 42.1% in ten years. Although the summers can get a bit hot, residents of Murrieta get to enjoy great weather ¾ of the year so it’s still not a bad deal. 

3. Oakland, Alameda

  • Median Property Price: $833,346
  • Average Price per Square Foot: $642.77
  • Days on Market: 61
  • Listings: 877
  • Traditional Rental Income: $2,909.88
  • Traditional Cash-on-Cash Return: 2.17%
  • Price-to-Rent Ratio: 23.87 (high)
  • Walk Score: 64.93

Oakland is one of the best places to live in the Bay Area. Its diverse population and natural beauty make it a top candidate for home buyers and those seeking to move to the West Coast. The cost of living may be a tad higher than most places but its growing economy balances things out. With big companies like Pandora and Pixel calling it home, plus an exciting and impressive startup scene, there is no shortage of jobs in Oakland. 

4. Palm Springs, Riverside

  • Median Property Price: $958,689
  • Average Price per Square Foot: $467.64
  • Days on Market: 73
  • Listings: 134
  • Traditional Rental Income: $3,052.91
  • Traditional Cash-on-Cash Return: 2.71%
  • Price-to-Rent Ratio: 26.17 (high)
  • Walk Score: 59

Palm Springs is the perfect place for those looking for the right balance of California-living. This resort community offers residents an affordable luxurious atmosphere allowing them to enjoy the best of both worlds. It’s one of the best rental markets in California because it offers investors affordable luxurious amenities that promise growth. 

5. Rancho Cucamonga, San Bernardino

  • Median Property Price: $691,599
  • Average Price per Square Foot: $399.18
  • Days on Market: 60
  • Listings: 693
  • Traditional Rental Income: $2,613.26
  • Traditional Cash-on-Cash Return: 2.14%
  • Price-to-Rent Ratio: 22.05 (high)
  • Walk Score: 67

Rancho Cucamonga is among the most attractive cities in California for those who want to relocate to the West Coast. With a crime rate 11% below the national average, it is one of the safest and family-friendliest cities in San Bernardino county. Its pleasant community, beautiful environment, growing economy, and great work-life balance make it one of the happiest places to live in the country. 

6. San Francisco, San Francisco

  • Median Property Price: $1,293,511
  • Average Price per Square Foot: $1,000.1
  • Days on Market: 68
  • Listings: 1,523
  • Traditional Rental Income: $4,090.59
  • Traditional Cash-on-Cash Return: 2.16%
  • Price-to-Rent Ratio: 26.35 (high)
  • Walk Score: 75.26

San Francisco has long been on many people’s lists of places to live in the US. Its progressive culture, pleasant weather, picturesque outdoors, and perpetually-growing economy make it a great place for individuals and families to move to. 

6 Best Market for Short-term Rentals

Short-term rentals have become one of the better (and cheaper) alternatives to hotels and resorts. Not only does this mean bigger savings for tourists and travelers, but it also means that investors can help meet the increasing demand for vacation rentals, 

However, it is important to note that each county has a different set of regulations for short-term rentals. It would be wise for real estate investors to find out what these rules are before they start acquiring properties in CA. 

Note that while some cities like Los Angeles and San Francisco are great places to invest in for Airbnb and other vacation home rentals, they may not be the best choices for out-of-state investors given certain city and county rules and regulations about rental properties. 

That being said, here are some of the best places to invest in real estate in California for those who are considering getting into the vacation rentals game: 

1. Anaheim, Orange

  • Median Property Price: $1,064,995
  • Average Price per Square Foot: $512.33
  • Days on Market: 67
  • Listings: 638
  • Airbnb Occupancy Rate: 67.83%
  • Airbnb Rental Income: $5,433.83
  • Airbnb Daily Rate: $270
  • Airbnb Cash-on-Cash Return: 4.74%
  • Price-to-Rent Ratio: 16.33 (medium)
  • Walk Score: 50.75

Anaheim is at the top of this list because of its very strong tourism market. After all, it is home to the Happiest Place on Earth as it is where Disneyland was born. Much of its tourism comes from its two Disney Parks but it also has several equally amazing attractions that bring people in droves every year. Real estate investors will not have a hard time recouping their investments in this California city. 

2. Huntington Beach, Orange

  • Median Property Price: $1,237,388
  • Average Price per Square Foot: $712.09
  • Days on Market: 69
  • Listings: 232
  • Airbnb Occupancy Rate: 72.33%
  • Airbnb Rental Income: $6,210.6
  • Airbnb Daily Rate: $262
  • Airbnb Cash-on-Cash Return: 3.33%
  • Price-to-Rent Ratio: 16.6 (medium)
  • Walk Score: 87

Huntington Beach is recognized as one of the country’s best vacation spots which probably explains why it draws in around 11 million visitors each year. More than just enjoying the best surfing spots in town, tourists take advantage of the nearly perfect weather all year long to take part in its numerous outdoor activities for both the young and old. 

3. Lake Arrowhead, San Bernardino

  • Median Property Price: $889,097
  • Average Price per Square Foot: $437.47
  • Days on Market: 72
  • Listings: 452
  • Airbnb Occupancy Rate: 58.18%
  • Airbnb Rental Income: $4,619.01
  • Airbnb Daily Rate: $316
  • Airbnb Cash-on-Cash Return: 3.82%
  • Price-to-Rent Ratio: 16.04 (medium)
  • Walk Score: 38

Unlike the other cities on this list, Lake Arrowhead offers tourists and visitors some quality time to be one with nature. With the San Bernardino Mountains serving as its backdrop, Lake Arrowhead sits in all its stunning glory as a paradise on earth for those who want to get away from the big-city hustle-and-bustle and spend a few days of downtime to recharge. 

4. Long Beach, Los Angeles

  • Median Property Price: $1,075,001
  • Average Price per Square Foot: $625.65
  • Days on Market: 64
  • Listings: 865
  • Airbnb Occupancy Rate: 72.63%
  • Airbnb Rental Income: $3,913.53
  • Airbnb Daily Rate: $159
  • Airbnb Cash-on-Cash Return: 2.46%
  • Price-to-Rent Ratio: 22.89 (high)
  • Walk Score: 63.49

Just a few ticks south of downtown LA, Long Beach offers tourists the best of two worlds as it has all the conveniences of big city life and the charm of a tropical seaside village. Its diverse population makes it a great place for gastronomic adventures. On top of its beaches, Long Beach also boasts numerous entertainment and amusement destinations making it a staple in peoples’ lists of places to go to. 

5. Palm Springs, Riverside

  • Median Property Price: $958,689
  • Average Price per Square Foot: $467.64
  • Days on Market: 73
  • Listings: 579
  • Airbnb Occupancy Rate: 63.47%
  • Airbnb Rental Income: $5,114.67
  • Airbnb Daily Rate: $365
  • Airbnb Cash-on-Cash Return: 3.36%
  • Price-to-Rent Ratio: 15.62 (medium)
  • Walk Score: 59

When it comes to the short-term rental market, Palm Springs is one of the places that are favorable for investors, even with certain county regulations in place. Once the proverbial playground of Hollywood stars, Palm Springs is now a fun tourist destination. Its healthy mix of sophistication and nature paired with year-round warm weather make it a great place for lots of fun in the sun. 

6. San Diego, San Diego

  • Median Property Price: $1,122,110
  • Average Price per Square Foot: $806.73
  • Days on Market: 58
  • Listings: 4,724
  • Airbnb Occupancy Rate: 63.44%
  • Airbnb Rental Income: $4,370.03
  • Airbnb Daily Rate: $231
  • Airbnb Cash-on-Cash Return: 2.12%
  • Price-to-Rent Ratio: 21.4 (high)
  • Walk Score: 53.03

With over 70 miles of shoreline, idyllic climate, and countless world-class attractions, San Diego is one of the top vacation spots on this side of the Pacific. It is a haven for those who love arts, culture, food, sports, and beaches. It hosts about 35 million yearly which makes it one of the best rental markets in California. 

The Bottom Line

Real estate investing is no joke. It involves a huge amount of money that can be crippling without the right investment strategy. For it to work, an investor should be well-informed of the present market conditions and fully prepared for unexpected occurrences. 

Fortunately, technology has now made locating the best rental markets in California a lot easier. Investors now have a plethora of resources to make the wisest business decisions. Digital platforms, like Mashvisor, that specialize in analyzing data help investors determine a certain property’s profitability within minutes. With tools like the Property Finder, Real Estate Heatmap, Investment Property Analytics, and even a Short-Term Rental Calculator, investors can see whether a prospective property lines up with their goals or not. 

Aside from these, they also have access to local real estate agents to help further assist them. To help you locate the best rental markets in California, start your free trial with Mashvisor now and get 15% off on your subscription.




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