Looking into new opportunities for real estate investing? Well, you should think about a San Diego investment property.
Why? Because the San Diego real estate market was one of the top markets in 2016, and this trend is forecast to continue in 2017 and beyond.
Related: Top 4 Benefits of Investing in San Diego Real Estate
Why Is San Diego Investment Property a Top Choice?
What do you need for a strong real estate investing destination? A healthy economy and tourism. San Diego has both of these. San Diego has a strong, diversified economy built on tourism, international trade, manufacturing, research, and defense. Moreover, it is a top touristic destination with beautiful weather and over 70 miles of coastline. San Diego is the 11th most visited city in the US for overseas travelers and among the top 5 locations for domestic tourism. Nearly 35 million visitors come to San Diego each year for leisure or business. The combined effect of a healthy economy oriented towards international trade and a strong tourism sector makes investing in San Diego real estate a top option for any real estate investor. So, if you are thinking about buying an income property, consider a San Diego investment property.
San Diego Investment Property Figures
The first thing that any real estate investor needs before deciding whether buying an income property in any particular market is a good option or not is looking at the real estate comps for this city. To save you lots of time from your search of the San Diego real estate market, below you will find a list of the key real estate investment figures for an average San Diego investment property, generated by Mashvisor’s investment property calculator:
- Median Property Price: $828,000
- Traditional Rental Income: $3,000
- Airbnb Rental Income: $3,000
- Traditional CoC Return: 2.3%
- Airbnb CoC Return: 2.5%
- Traditional Cap Rate: 4.8%
- Airbnb Cap Rate: 5.1%
- Airbnb Occupancy Rate: 66.6%
As you can see, income properties in the San Diego real estate market are rather expensive. At the same time, they offer high rental income – around $3,000 for both traditional and Airbnb rental strategy. The expected cash on cash (CoC) return is 2.3% for traditional and 2.5% for Airbnb, while the capitalization (cap) rate is 4.8% for traditional and 5.1% for Airbnb. This means that a San Diego investment property offers much better profitability for both traditional and Airbnb strategies than many other top real estate market cities in the US.
What Is the Better Rental Strategy for a San Diego Investment Property?
Usually it’s pretty easy to decide whether it’s better to rent out your income property as traditional or Airbnb in any specific city just by looking at the expected rates of return computed by Mashvisor’s investment property calculator. However, that’s not the case for a San Diego investment property as the traditional and Airbnb CoC returns and cap rates are quite similar. But there is one more thing that you should consider before deciding whether to go for traditional or Airbnb: the city’s legislation on short-term rentals.
Until now, San Diego has been one of the few major cities whose laws has remained silent on the issue of Airbnb legislation. However, that was about to change a few weeks ago when the City Council rejected an Airbnb ordinance proposed by the Council’s President Sherri Lightner, which would have banned nearly all San Diego Airbnb rentals. The Council’s decision is definitely a positive signal from the city’s administration that it is not likely to prohibit this very popular kind of renting in San Diego in the near future.
San Diego Investment Property Affordability
As the figures above show, affordability is a major issue in the San Diego real estate market with a median property price of over $800,000. However, that’s not necessarily bad news for real estate investors looking to buy a San Diego investment property. By choosing the right financing strategy and taking advantage of some tax deductions for real estate investors, you can make investing in San Diego real estate work out for you. The good thing about high property prices is that they make homes unaffordable for the general population, which will have to opt for renting a property, pushing demand in the rental market up. According to experts, the outlook for income property and rental income in the San Diego real estate market – similar to Los Angeles, San Francisco, Miami, Dallas, Seattle, New York, and Denver – is particularly positive in the upcoming period. So, by all means, seriously think about buying a San Diego investment property now as prices are set to continue going up.
Related: The Best California Real Estate Markets: Affordable and Not So Affordable Areas
San Diego Real Estate Appreciation
Although the expected profitability of a San Diego investment property is quite good, it is not as high as could be found in other US real estate markets. However, there is one other significant factor which makes investing in San Diego real estate very attractive at the moment – appreciation rates. As you know, there are two basic motivations to invest in real estate: 1) positive cash flow in the short term and 2) appreciation in the long term. While it is always important to have positive cash flow from any income property, i.e., to go beyond the break even point on a real estate investment property, sometimes expected appreciation adds extra motivation to go for a particular market or property. You will be happy to learn that appreciation in the San Diego real estate market has been triple the national average. In real terms this means that a home purchased in the San Diego real estate market in mid-2015 had appreciated in value by an average of $53,000, compared to a national average of $16,000. A San Diego investment property bought 5 years ago had appreciated by $208,000 on average, while the national average appreciation has been $69,000. Profits from investing in San Diego real estate can be quite significant.
Related: Is It OK to Invest in Real Estate Just for Appreciation?
If you are looking for your next investment property location, San Diego should be among your top choices. Make sure to check out Mashvisor to figure out the most profitable neighborhoods for San Diego real estate investments and to search through actual properties.
