Buying Investment Properties in San Francisco

The San Francisco real estate market is one of the most in-demand in the whole nation. The City by the Bay is considered by many an ideal location for both traditional and Airbnb investments. For the most part, the San Francisco real estate market has held its value considering the scarcity of land. We are about to exploreoptions for investment properties in San Francisco, both traditional as well as Airbnb.

As you will see while reading, traditional real estate investing has become rather difficult in the city. We’ll tell you why, and then offer the alternative.

The Housing Bubble

The Business Insider reports, “In 2015, the median house price in San Francisco was six times higher than the median price of existing homes in the US.” That being said, it is important to refer to the housing bubble currently undertaking San Francisco. The high property prices, strong tenant rights, rent control, low rent-to-home-value ratio, among other factors all contribute to making the San Francisco real estate market very difficult. Being a landlord under these circumstances has become rather challenging. If you are considering purchasing a buy-to-let property, you will require a large down payment if you expect to have a positive cash flow right away. Investing in San Francisco has long-term benefits, meaning a property will appreciate very well in this city but it’s not necessarily the optimal city for short-term benefits.

We do not, of course, mean to discourage you from investing in traditional investment properties in San Francisco. We are, however, offering you a promising alternative – short-term rentals.

An Alternative: Airbnb San Francisco

Because traditional real estate investing is a challenge, more investors have become inclined towards Airbnb investing in San Francisco. It is no secret that Airbnb is gaining major popularity in San Francisco (as well as across the nation). The city is currently one of the hottest spots for the sharing economy service. So we suggest renting out a part of your home on Airbnb or listing your property on Airbnb to reap its rewards – higher rental income.

So why does Airbnb San Francisco make sense? To help you recognize the opportunity of this investment, we provide the following stats from Mashvisor. It reports the following about San Francisco properties:

Aibnb Property Data

Entire home listings: 1272 units

Average nightly price: $191

Average cash on cash return: 2.52%

Average monthly rental income: $4064

Median home price: $1,444,650

Traditional Property Data

Traditional property count: 1587 units

Average cash on cash return: 2.13%

Median home price: $1,444,650

Using the above numbers, as well as Mashvisor’s own analysis of Airbnb San Francisco, you can assess and compare different properties across traditional and Airbnb options.

Airbnb Legal Issues

Please note that you must bear in mind Airbnb Business Registration and Taxes. San Francisco Airbnb hosts are required to obtain a short-term Residential Rental Registration number. San Francisco also has a Transient Occupancy Tax (TOT Tax) equal to 14% and is paid for the city by the guests at the time of booking. Finally, you must be present in the property 275 days out of the year, which means you can only rent out the property without being present for up to 90 days total per year.

Make sure to check out Airbnb San Francisco official guidelines before listing your property to better understand the regulations and requirements associated with listing your property.

Why San Francisco Real Estate Investment?

Now as to what makes San Francisco such a good real estate investment, whether Airbnb or traditional, it is simply the fact that it is a very important tourist attraction. It is one of the most visited and most popular cities in the US. And here’s a few reasons why:

Golden Gate Bridge: Opened in 1937, the Golden Gate bridge is an icon of California and is often considered the top tourist attraction in San Francisco. It is one of the main man-made structures in the US.
Alcatraz: This historic island in San Francisco Bay hosts the infamous Alcatraz prison. It now operates as a tourist attraction.
Golden Gate Park: A gorgeous green area in San Francisco which holds three museums, a botanic garden, walking and cycling trails, and much more for visitors to enjoy.
Fisherman’s Wharf: This is where most tourists head first. Fisherman’s Wharf is known for its spectacular setting, restaurants, and bay cruises. It holds several other tourist attractions such as the Wax Museum, Ghirardelli Square, and Pier 39.
Cable Cars: San Francisco’s few remaining cable cars now allow visitors to enjoy the old transportation means that were declared as historic monuments.
Chinatown: You have probably been to different “Chinatowns”, but this one is something else. It is the biggest in Northern America and is one of the most attractive destinations in San Francisco. Expect to see theatres, antique stores, temples, etc.
Entertainment: San Francisco boasts in its (entertainment) life and numerous events. From music festivals, to art festivals, to clubs, jazz bars, restaurants, if you can think of it, it is there!

Top Airbnb San Francisco Real Estate Neighborhoods

Before anything, we would like to remind you that you can always search for property listings on Mashvisor by choosing specific neighborhoods and viewing their investment analysis. The following is a list (in no particular order) of suggested neighborhoods for San Francisco real estate investments.

Mission District

Well known for the extensive graffiti artwork in its streets, Mission District, specifically outer mission, Mission is one of the most important investment neighborhoods in San Francisco. It is very famous for its art scene as well as its restaurants.

Occupancy Rate: 80.00%.

Average Airbnb Rental Income/month: $5,129

Little Hollywood

A rather small neighborhood but very popular among Airbnb users.

Occupancy Rate: 83.00%.

Average Airbnb Rental Income/month: $4,995

Inner Richmond

This neighborhood is bordered by several parks including the Golden Gate Park, Lincoln Park, and Land’s End.

Occupancy Rate: 81.00%.

Average Airbnb Rental Income/month: $6,221

North Beach

It is considered the “Little Italy” of San Francisco. It is very famous for its diverse demographic. It is also named one the top ten “Great Neighborhoods in America.”

Occupancy Rate: 79.00%.

Average Airbnb Rental Income/month: $7,801

These neighborhoods have shown the most potential. Mashvisor’s analytic tools to view more neighborhoods and their occupancy rates, average rental income, CoC returns, and other important data.

All in all, if you do not possess a large down payment but would still like to invest in San Francisco, consider the Airbnb option. Of course, there are several legal matters and concerns to tend to, so you should keep those in mind. And remember, while challenging, San Francisco real estate investment is not only financially worthwhile; the city, its culture, people, architecture, and bustling livelihood are all impossible to replicate.

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