Are you looking for a location for your next investment property purchase? Are you thinking whether out-of-state real estate investing or buying a rental property within the 20-mile radius is better? Basically, it depends on which state and which city you live in. In any case, as a real estate investor, you have to know that at the moment California is emerging as the best place to invest in real estate in 2017 and beyond, until 2020 at the least.
But what makes for the best place to invest in real estate? It’s a number of factors working together which can bring high profitability to your real estate business. These include:
- Abundant and growing employment opportunities – meaning that there will be more and more people moving into your location, and tenants will be able to pay the rent;
- Low property taxes and other fees required for an income property – meaning that your expenses will not be too high;
- Reasonable regulations regarding real estate investments – meaning that the legal and regulatory environment favor real estate investors and landlords and allows for Airbnb rentals;
- Conducive business environment – meaning that new businesses will be opening in the area, leading to economic growth and new job opportunities;
- High number of renters and people still needing to rent – meaning that your investment property will be in high demand and you will be able to charge good rent (i.e., high rental income).
When combined, these factors lead to 2 things that every real estate investor should go after: high rental income and high cap rates.
So, which US states and cities exhibit all these characteristics, i.e., where should you buy your next rental property? According to www.gordcollins.com, specializing in real estate forecasts, while many US real estate markets are particularly hot, the best place to invest in real estate is California. The main criterion on which they base their ranking is the price-to-rent ratio, obtained from SmartAsset. As places with high price-to-rent ratio – like all those included in the ranking – are generally attractive to renters rather than home buyers, they make the best place to invest in real estate as rental demand will be high. In a list of 80 top locations for buying a rental property in 2017-2020, 14 are in California, including #1, #3, and #4.
Let’s take a look at the most attractive cities for new real estate investments in California, the best place to invest in real estate in the US at the moment:
1. San Francisco
- Median Property Price: $1,565,000
- Rental Income: $4,740
- CoC Return: 1.9%
- Cap Rate: 1.9%
No surprise, San Francisco is not only the best place to invest in real estate in the State of California but also across the entire country. The high rents, Silicon Valley incomes, limited land and housing options, and growing economy all work together to put San Francisco at the top of the US real estate investment markets for rental properties. As data from Mashvisor’s investment property calculator shows, while the San Francisco housing market features pretty much the higher median property price for single property homes in the US housing market, the rental income is also very high. Moreover, real estate appreciation there is expected to be large in the near future as more and more people migrate there, facing scarce land and real estate properties.
Regarding the data from Mashvisor in this blog, please note that the return on investment measures – CoC return and cap rate – assume an income property paid for fully in cash. Moreover, all figures are for traditional – and not Airbnb – rentals.
- Median Property Price: $1,047,000
- Rental Income: $3,840
- CoC Return: 1.8%
- Cap Rate: 1.8%
The second best place to invest in real estate in California and the third in the US is Oakland. Among many other factors favorable for real estate investing, Oakland also features the busiest port in the San Francisco Bay and the fifth busiest one nationwide. As expected, property prices here are high as well, but so is rental income. If you think that might be the location for your next investment property purchase, hurry up as property prices are set to continue going up in the years to come.
3. Los Angeles
- Median Property Price: $1,058,000
- Rental Income: $3,380
- CoC Return: 1.7%
- Cap Rate: 1.7%
It is only logical that as vibrant city as Los Angeles will be the fourth best place to invest in real estate in the US. As the price-to-rent ratio is high, there will be constant demand for rental properties from tenants who can afford to pay significant rents. Any real estate investor should consider a Los Angeles investment property.
4. San Jose
- Median Property Price: $991,000
- Rental Income: $3,240
- CoC Return: 2.3%
- Cap Rate: 2.3%
If you are looking for an income property that costs less than 1 million dollars to invest in, then you should consider San Jose, another best place to invest in real estate in 2017-2020.
5. Long Beach
- Median Property Price: $681,000
- Rental Income: $2,160
- CoC Return: 1.2%
- Cap Rate: 1.2%
Long Beach is another best place to invest in real estate in California and in the US in general. Moreover, it is way more affordable than the previously listed cities. Because let’s face it, not many real estate investors, especially beginners, can spend a million dollars on buying a rental property, even if using a mortgage.
- Median Property Price: $533,000
- Rental Income: $2,320
- CoC Return: 2.5%
- Cap Rate: 2.5%
Best place to invest in real estate in California #6 is Anaheim, where median property prices for single family properties are closer to half a million US dollars, rather than one million. Of course, the rental income is also lower, but the overall profitability stays as high as – or even higher than – in the more expensive options.
You as a real estate investor might think that calling California the emerging best place to invest in real estate is insane, taking into consideration the high property prices and that seems like not so high CoC return and cap rate. Then, you should remember that the main criterion here is the price-to-rent ratio. While as a home buyer, you would like this number to be low, as a real estate investor and landlord you want it high. The high price-to-rent ratio will discourage many people from buying a house in this location at the moment, which will automatically turn them into tenants or people seeking to rent a property. And that’s exactly what you want in real estate investing. Once you are convinced of the urgency to invest in the California real estate market right now, make sure to search for the best investment properties at Mashvisor.