When searching for the next best place to buy investment property, you need to keep in mind one of the most important metrics in real estate investing: CASH ON CASH RETURN. Finding an area that offers high cash on cash return is the first step to ensure that your investment has a high potential for generating profit.
Smart real estate investors choose their location strategically and with careful thought. Because location is the key to finding profitable investments, this blog is dedicated to all property investors in search for the best place to buy investment property for high cash on cash return in 2018. But before anything, let’s talk a little about cash on cash return and why this metric is a must when searching for locations to invest in.
The best place to buy investment property: Cash on cash return
Cash on cash return is a popular metric in real estate investing that helps property investors determine the estimated return on investment for their investment property. Cash on cash return also tells them how much time the property needs to generate enough profits to make up for the total amount of cash you paid for it.
In simple words, cash on cash return is the rate of return on investment that an investment property will have based on the property’s cash flow which is shown as a percentage. Many people tend to confuse cash on cash return with cap rate. Both are used to determine the rate of return on investment. However, unlike cap rate, cash on cash return takes into consideration the financing method used for the purchase of an investment property (cash or mortgage).
Related: Cap Rate vs. Cash on Cash Return
Why is cash on cash return important when searching for the best place to buy investment property? The cash on cash return is important in real estate investing because it helps real estate investors know whether an investment property is worth the purchase or not. Knowing the cash on cash return allows investors to determine how many years they need to hold the property before it begins generating pure profits. The higher the cash on cash return is, the better. Investing in a property that has high cash on cash return means that the property’s profits are worth it when you compare them to the amount of cash that you paid.
What is a good cash on cash return?
This is a very debatable topic among property investors. Many real estate investors say that in order to make money in real estate, your cash on cash return should not be below 8-12%. However, due to the many factors that affect the cash on cash return of an investment property (like location, supply, and demand, etc.), we can say that a value of 4-5% can be considered a good cash on cash return. To be on the safe side, check out Mashvisor’s data to find the most profitable locations for your investment property and the next best place to buy investment property.
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After looking into Mashvisor’s data and the stats taken from Mashvisor’s rental property calculator, we were able to pull out the best place to buy investment property for cash on cash return in 2018. This place is OAKLAND, CALIFORNIA! Let’s take a closer look at why the Oakland real estate market is 2018’s best place to buy investment property.
Oakland Real Estate Market Trends
#1 Increasing Population
When we think about the California Bay Area, we automatically picture San Francisco. However, Oakland which is located just across the Bay and neighbors San Francisco is currently the talk of the town. So many people are heading towards Oakland to get away from San Francisco’s insanely high home prices which exceed a million dollars!
Even though home prices in Oakland are not entirely “CHEAP”, compared to its neighboring areas, it’s the better choice. Home prices in Oakland have been steadily rising over the years and as a result, many people are choosing to rent rather than to buy. For real estate investors, this increased rental demand in the Oakland real estate market is your sign to take action. Start your investment property search before Oakland’s home prices get too high.
#2 Growing job market and a thriving economy
Besides the fact that Oakland is very close to San Francisco, this city offers many benefits due to its strong and thriving economy. Oakland has ranked as one of the top cities for growing businesses in the past decade. As a result of this, many giant companies are relocating to Oakland to make the most out of its strong economy and affordability.
Oakland’s thriving economy has opened an array of job opportunities. Just last year, Oakland saw a 2.6% growth in their job market and is expected to see more growth in coming years. This is great news for real estate investors since so many people are moving to Oakland for job opportunities. This means that the demand for real estate properties will increase and property investors will have the upper hand with increasing rents. With the Oakland real estate market having such a thriving economy, you can guarantee that you will receive a high return on investment and cash on cash return.
#3 Airbnb Oakland
This city’s location makes it a perfect destination for Airbnb rentals. Oakland has a high rate of tourism and has so many attractions to offer its visitors. This city is known for its delicious foods, creative energy, and natural earthy beauty. The city’s tourism rate is gradually increasing every year making investing in Airbnb Oakland a smart investment decision.
But before anything, you need to familiarize yourself with the different Airbnb laws and regulations in the area. Airbnb Oakland is highly regulated in certain neighborhoods and is subject to complicated rental control programs. Also, you need to register to obtain a business permit to rent out your short-term rental through Airbnb. That is why you should carefully read over and review Oakland’s Airbnb regulations to ensure you don’t fall into anything illegally. To help you out, you can consult with a local lawyer before making any decisions.
The Oakland real estate market is not only the best place to buy investment property for Airbnb rentals but traditional rentals as well. Before going into detail about the top-performing neighborhoods in Oakland, let’s take a look at an overview of the Oakland real estate market.
Oakland real estate market overview
- Median Property Price: $858,692
- Traditional Rental Income: $3,391
- Airbnb Rental Income: $3,205
- Traditional Cash on Cash Return: 1.35%
- Airbnb Cash on Cash Return: 1.45%
- Traditional Cap Rate: 1.35%
- Airbnb Cap Rate: 1.45%
- Airbnb Occupancy Rate: 60.38%
While the average cash on cash return in Oakland may not be high, take a look at the numbers for the best neighborhood in Oakland for real estate investing.
Best place to buy investment property: Shafter, Oakland, CA
- Median Property Price: $244,345
- Traditional Rental Income: $3,680
- Airbnb Rental Income: $4,307
- Traditional Cash on Cash Return: 9.61%
- Airbnb Cash on Cash Return: 9.74%
- Airbnb Occupancy Rate: 72.04%
According to the data above, it is clear that the Oakland real estate market is hot this year! After conducting a real estate market analysis using our investment property calculator, we were able to identify the best performing neighborhood in Oakland. Shafter alone offers so many real estate investing opportunities for investors interested in short-term rentals as well as long-term rentals. With a cash on cash return that high, there is no need to second-guess the Oakland real estate market!
If you are considering investing in other neighborhoods in Oakland, you can easily locate the top performing properties in your neighborhood of choice by using Mashvisor’s property finder tool. Our tool allows you to find investment properties according to your desired rental strategy and search criteria by using the different filters to filter out properties.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
A final thought
If you’re wondering where the best place to buy investment property for cash on cash return is, then Oakland is your answer. This city is on fire this year and smart real estate investors should seize the moment and invest in the Oakland real estate market.
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