Home to Napa Valley’s Wines, Silicon Valley’s technology, and Hollywood, California is the most populous state in the US. In a recent ranking of the best places to live in the US, California was placed at number 24. Besides being a great place to live, California is also perfect for investing in real estate.
So, what is the current state of the California housing market? In June 2021, California real estate market figures from Redfin show that the average home price statewide was $720,000, a 30% year-over-year increase. 40,836 homes were sold in the same month, a 41.6% year-over-year increase.
When it comes to housing supply, the number of homes available for sale fell 35.8% to 45,338. Median days on market also dropped by 50% to 22 days.
With the high demand for homes and limited supply, it is inevitable that the prices will only continue to rise. And since living in California is desirable, it is expected that more people will be moving to the state. This is good news for anyone that wants to buy California investment property.
Reasons to Invest in Traditional Rental Properties
Before we look at the best places to live in California, let us explore some of the benefits of investing in long-term rental properties. Here are some of the reasons why investing in traditional rentals in the cheap places to live in California is a good idea:
One of the greatest advantages of owning California rental property is that it’s a source of passive income. This means that you can earn a recurring income without putting in much effort. This is ideal for people that want to make a little cash on the side or ensure financial security during retirement.
Owners of rental property in the best places to live in California can take advantage of a wide range of tax breaks and deductions. This includes the following:
- Interest: Homeowners can deduct interest paid on loans used to improve or purchase an investment property
- Depreciation: Typically, property depreciates over time. Landlords are allowed to deduct the cost of depreciation over several years
- Repairs: The cost of repairs is deductible. This could be anything from repainting the home and replacing broken appliances, to fixing floors and repairing the roof
- Insurance: You are allowed to deduct insurance premiums paid for anything related to your rental property. This includes flood insurance, theft insurance, fire insurance, and landlord liability insurance
- Home office: If you work from home as a landlord, you can deduct any home office expenses incurred (provided you meet specific requirements)
Hedge Against Inflation
One of the best ways of dealing with inflation is by buying real estate in the best places to live in California. As the rate of inflation goes up, so will the value of your investment property. Rents also usually go up in direct proportion to the rate of inflation.
Diversification of Investments
When it comes to investments, you should never put all your eggs in one basket. Owning rental property is a great way of diversifying your portfolio and protecting yourself against risk. You can diversify your investment between different types of properties including condos, single family homes, apartments, and multi family homes. You could also buy property in different cities and neighborhoods in the best places to live in California. This will safeguard you from market swings that affect different areas.
Typically, real estate increases in value over time. This means that you can make a good profit when it’s time to sell. Rents also go up over time, which will result in a higher cash flow.
As you pay off the mortgage or as the value of your home increases, you build equity. You can later tap into the equity and borrow a home equity loan to purchase a second property in the best places to live in California, thus growing your portfolio.
Features of a Profitable Rental Property
Here are some features to consider when looking for a rental property in the best place to live in California:
- Crime: No one wants to live in an area riddled with crime. You can Google to find information about crime statistics for different cities. Is the rate of criminal activity declining or rising? This should give you an idea of whether investing in a city would be a good idea or not
- Job market: Areas with growing employment opportunities pull in more tenants. To learn about the job availability in an area, visit the local library or visit the U.S. Bureau of Statistics (BLS) website. Also, look out for news about companies moving into the area. The higher the employment rate, the more the demand for rental property will be.
- Amenities: Visit the area or search on Google to learn about amenities such as public transportation links, movie theatres, gyms, restaurants, and parks. Tenants love neighborhoods where amenities are easily accessible.
- Future developments: Visit the local planning department to learn about plans or developments that have been zoned into the neighborhood. Zero in on areas that have a lot of infrastructure developments planned. In addition, be wary about new developments that could have a negative impact on the prices of homes.
- Number of listings and vacancies: If an area has too many listings, it could be an indication that investors are not interested. Find out the reasons why people are not buying homes. Similarly, be wary of neighborhoods with high vacancy rates. When the vacancy rate is high, landlords are forced to lower rents in order to attract tenants.
- Average rents: The average rental income in the best places to live in California will show you whether an investment is worth it. Check if the average rent will cover your mortgage payment, insurance, taxes, and other expenses. Also, study the area to get an idea of where it is headed in the next few years. A profitable property today could turn out to be a disaster 5 years down the line.
Best Places to Live in California
U.S. News recently released a ranking of the best cities to live in California in 2021-2022. Cities listed in the ranking are evaluated using data from the U.S. Department of Labor, the FBI, the U.S. Census Bureau, and U.S. News’ own resources.
Here are some of the best cities in California to invest in traditional rentals or long-term rentals. The accompanying metrics for the best places to live in California are derived from the latest Mashvisor data.
Sacramento Real Estate Market
Median Property Price: $ 454,560
Price per Square Foot: $ 306
Price to Rent Ratio: 23
Monthly Traditional Rental Income: $ 1,646
Traditional Cash on Cash Return: 1.98
With its ethnic diversity and warm weather, Sacramento is one of the best places to live in Northern California. It boasts a vibrant economy that offers exciting opportunities for visitors and locals alike. Sacramento is also a haven for foodies. Being at the center of the farm-to-fork movement, residents of the city have access to a wide range of fresh, locally sourced foods from nearby breweries, wineries, and farms.
Los Angeles Real Estate Market
Median Property Price: $ 1,190,958
Price per Square Foot: $ 928
Price to Rent Ratio: 26
Monthly Traditional Rental Income: $ 3,787
Traditional Cash on Cash Return: 1.91
You cannot talk about cities in Southern California without mentioning Los Angeles, the second-largest metropolitan area in the U.S. Considered by many as the unofficial capital of California, LA is a city rich in culture and history. From the historic Olvera Street, craft shops, and kiosks to dozens of restaurants, there is no shortage of exciting experiences in the city. Sports lovers can visit the Dodger Stadium and the Staples Centre to enjoy exciting games.
Fresno Real Estate Market
Median Property Price: $ 388,469
Price per Square Foot: $ 210
Price to Rent Ratio: 28
Monthly Traditional Rental Income: $ 1,162
Traditional Cash on Cash Return: 1.58
California.com lists Fresno as one of the best affordable places to live in California. Located in the agricultural heart of California, Fresno is well known for its variety of organic foods, from peaches and tomatoes to pistachios and almonds. The area is also popular due to its inexpensive housing, diverse job market, and an array of cultural attractions. The three famous national parks – Sequoia, Kings Canyon, and Yosemite are only a short drive away.
Santa Rosa Real Estate Market
Median Property Price: $ 1,003,228
Price per Square Foot: $ 497
Price to Rent Ratio: 26
Monthly Traditional Rental Income: $ 3,213
Traditional Cash on Cash Return: 2.63
Besides being a great place to live, Santa Rosa is also one of the best places to raise a family. The city boasts rolling golden hills, a warm climate, and desirable real estate. With high-end shops and gourmet restaurants, Santa Rosa offers a great metropolitan lifestyle experience. If you enjoy the outdoors, you will find a wide range of parks perfect for biking, hiking, or relaxing.
San Jose Real Estate Market
Median Property Price: $ 1,041,565
Price per Square Foot: $ 715
Price to Rent Ratio: 30
Monthly Traditional Rental Income: $ 2,937
Traditional Cash on Cash Return: 1.31
Safety.com mentions San Jose among the 50 safest cities in California. The ranking was done based on public safety factors like violent crime, property crime, aggravated assault, hate crime, and mass shootings. Socioeconomic factors like annual rent, cost of living, unemployment rate, and poverty rate were also considered.
Besides being a safe city, San Jose is well known for its warm weather, proximity to the ocean, and sprawling suburban neighborhoods. Located close to Apple in Cupertino, Google in Mountain View, and Silicon Valley, San Jose is a tech hub in its own right.
San Diego Real Estate Market
Median Property Price: $ 890,992
Price per Square Foot: $ 595
Price to Rent Ratio: 27
Monthly Traditional Rental Income: $ 2,737
Traditional Cash on Cash Return: 1.74
Famous for its impressive beaches and sunny weather, San Diego is considered one of the best cities for young people. From entertainment venues to free museums to outdoor activities, there is plenty to do in the city. The main employers in San Diego are hospitals, schools, biotechnology companies, seafood companies, and cellular technology companies. With about 200 schools located there, San Diego is the second-largest school district in California.
San Francisco Real Estate Market
Median Property Price: $ 1,463,289
Price per Square Foot: $ 1,026
Price to Rent Ratio: 30
Monthly Traditional Rental Income: $ 4,066
Traditional Cash on Cash Return: 1.52
San Francisco is a financial, commercial, and cultural center in Northern California. According to the World Population Review, the city has a population of 883,255 and a population growth rate of 0.1% annually. It is the fourth most populous city in California behind Los Angeles, San Jose, and San Diego.
Well known for its iconic Golden Gate Bridge, San Francisco is the jewel of Northern California. The city is rich in history, museums, beaches, parks, and great neighborhoods. Popular attractions include Fisherman’s Wharf, Alcatraz Island, and Golden Gate Park.
San Francisco boasts a diversified service economy, with the highest employment rates being in the technology, tourism, and financial industries. Other rapidly growing industries include medical research and biotechnology.
Santa Barbara Real Estate Market
Median Property Price: $ 1,930,455
Price per Square Foot: $ 1,021
Price to Rent Ratio: 32
Monthly Traditional Rental Income: $ 4,976
Traditional Cash on Cash Return: 1.62
Often referred to as the ‘American Riviera’, Santa Barbara has a population of over 91,000. It boasts a diverse economy that includes technology, education, local government, manufacturing, finance, and health care. According to bestplaces.net, the job market has increased by 0.8% in the past year. The average income is $37,692 per annum, higher than the national average of $28,555. The median household income is $65,916 a year, higher than the national average of $53,482.
With its warm Mediterranean climate and palm-lined waterfronts, Santa Barbara is one of the most popular tourist destinations in California. Top attractions include Stearns Wharf, Santa Barbara Zoo, whale watching tours, and Santa Barbara courthouse.
Stockton Real Estate Market
Median Property Price: $ 383,687
Price per Square Foot: $ 255
Price to Rent Ratio: 24
Monthly Traditional Rental Income: $ 1,310
Traditional Cash on Cash Return: 1.81
With its warm climate and booming economy, Stockton is one of the best places to live in California. The job market has grown by 2.2% in the previous year, with job growth over the next ten years projected to be 33.6%. The average income is $19,927 per year, and the median household income is $45,347 per year. Retail trade, manufacturing, healthcare, transportation, education, and construction are some of the leading industries in the city.
When it comes to attractions, there is plenty to see and do in Stockton. The Haggin Museum, Stockton Arena, Pixie Wood Park, Banner Island, and Stockton Marina are some of the main attractions in the city. Stockton also plays host to numerous annual festivals such as Christian Spirit Festival, Stockton Beer Week, Greek Festival, Jewish Food Fair, and Black Family Day.
Modesto Real Estate Market
Median Property Price: $ 443,983
Price per Square Foot: $ 302
Price to Rent Ratio: 30
Monthly Traditional Rental Income: $ 1,249
Traditional Cash on Cash Return: 1.17
Spanish for ‘modest’, Modesto is a culturally rich city surrounded by quaint residential neighborhoods. The neighborhoods are lined with old, towering trees, and the numerous parks provide an ideal setting for jogs and walks. Modesto is home to many farmlands that provide the nation with almonds, dairy products, grapes, lettuce, and other foods.
If you love history, you will enjoy a visit to McHenry Mansion, Crow House, Hawke Castle, Robert Walton House, and Dry Creek Bridge. The downtown offers plenty of entertainment, from comedy showcases to concerts in both intimate and large venues.
When it comes to the economy, Modesto has seen an increase of 1.3% in the job market over the last year. Over the next ten years, job growth is expected to be 29.5%. Principal employers in the city include E & J Gallo Winery, Memorial Medical Centre, Modesto Junior College, and Doctors Medical Centre.
To find the cheapest places to live in California, you could work with a California real estate agent, check real estate sites, visit Craigslist or even drive around neighborhoods.
However, the best place to find off-market properties in Northern California cities or Southern California cities is the Mashvisor’s Property Marketplace. This tool provides you with easy access to short sales, foreclosures, bank-owned homes, and even tenant-occupied rentals. You can narrow down your search using filters like type of property, rental strategy, budget, and miles.
The best part is that you can analyze the investment potential of the best places to live in California. The Investment Property Calculator will show you the expected rental income, monthly expenses, cap rate, cash on cash return, and cash flow.