Every real estate investor should be on constant search for new investment property opportunities throughout the country. Whether you go for in-state or out-of-state real estate investing, experts say that you should be adding a new rental property to your real estate investment portfolio once every 2-3 years. If now’s the time for you to buy yet another income property, you must be thinking about the best locations for real estate investments across the US. Undoubtedly, San Diego is one of them. The city on the Pacific coast of California has been attracting both migrants and short-term visitors for its amazing beaches, green parks, and pleasant warm climate. As you know, location is – nearly – everything in real estate investing, and the San Diego real estate market is definitely a top choice for your next investment. However, as a real estate investor, you also know that location is not just the state and the city, it is also the neighborhood and even the part of the neighborhood. This means that we need to have a look at the best places for investments within the San Diego real estate market.
What Drives the San Diego Real Estate Market?
Before delving into the top neighborhoods to buy a San Diego real estate investment property, it’s important to understand the dynamics behind what drives the local real estate market in general. The economy is one of the main factors determining how good any location is for real estate investment purposes. In this regard, it is good to know that San Diego is one of the leading high-tech hubs in the US. In recent years the focus in the local economy has been on commercializing research and growing entrepreneurial, knowledge-based companies. This generally means that the population should be dominated by young people – from San Diego and beyond – working in these industries, who are making some decent money but not necessarily enough to buy a home right away. Well, that’s just the perfect news for any real estate investor, looking for the traditional rental strategy and long-term tenants. The city is also a home to a deepwater port, which is great for all sorts of economic sectors including shipbuilding, defense, trade, and others. This means that the San Diego real estate market should be able to host various employees and their families as well as short-term travelers.
Related: Location Location Location – Is Location Really All in Real Estate Investing?
Another important aspect of a location which attracts a lot of people is tourism. San Diego is an ideal place for tourist activities due to the warm climate year-round, the endless beaches, and the beautiful parks. This should be of special interest to real estate investors looking for Airbnb rental options.
What Is the Deal with Airbnb San Diego Real Estate?
Since Airbnb San Diego real estate investments could potentially be very beneficial for real estate investors – due to the major influx of short-term visitors in terms of both tourists and businesspeople – it is needed to understand the local legal situation in this regard. Honestly, the Airbnb situation in San Diego is complicated. To begin with, it is still not entirely clear whether Airbnb San Diego real estate properties are legal or not. In recent years there have been efforts to crack down on these rental services, but the actions have been few and with little overall effects. Actually, Airbnb San Diego is doing quite well. So, if that’s an option you want to consider, make sure to keep an eye on more developments in the regulation controlling short-term rentals in the coming months and years. Meanwhile, you will have to pay the city’s transient occupancy tax of 10.5%. But that should not by any means discourage you from investing in an Airbnb rental in San Diego as most major cities across the US charge tax to short-term real estate investors.
How Profitable Is Investing in San Diego Real Estate?
Before we move to the best places to invest in real estate properties in San Diego, let’s see what return on investment the city offers as a whole. San Diego investment properties price mid-range, meaning that with a median property price of $678,000 the city is more expensive than Phoenix ($300,000), Atlanta ($400,000), Dallas ($403,000), Houston ($464,000), and Austin ($480,000) but cheaper than Boston ($826,000) and Los Angeles ($908,000), which are all top locations for buying rental properties and investing in real estate. The rental income is really good at above $2,000 for both traditional and Airbnb rental strategy. Despite this high rental income, profitability in terms of cash on cash return (CoC return) and capitalization rate (cap rate) is not as high as could be expected but is comparable to return on investment in other major cities.
You should keep in mind that all the numbers below are computed by Mashvisor’s investment property calculator, which is among the best real estate investing tools available out there. It uses traditional and predictive analytics to provide estimates of the major metrics for cities, neighborhoods, and specific rental properties. The CoC return and the cap rate are the same because Mashvisor’s rental property calculator assumes that all investment properties are bought fully in cash.
- Median Property Price: $678,000
- Traditional Rental Income: $2,570
- Traditional CoC Return: 2.3%
- Traditional Cap Rate: 2.3%
- Airbnb Rental Income: $2,240
- Airbnb CoC Return: 2.1%
- Airbnb Cap Rate: 2.1%
What Are the Best Places for Buying San Diego Real Estate Investment Properties?
Now it’s time to look at the best neighborhoods for investing in San Diego real estate.
Related: The Most Affordable San Diego Neighborhoods to Invest In
1. East Village
- Median Property Price: $475,000
- Traditional Rental Income: $2,630
- Traditional CoC Return: 3.2%
- Traditional Cap Rate: 3.2%
- Airbnb Rental Income: $3,690
- Airbnb CoC Return: 5.4%
- Airbnb Cap Rate: 5.4%
- Airbnb Occupancy Rate: 61.0%
East Village is by far the most profitable place to buy an investment property in the San Diego real estate market, both traditional and Airbnb. In addition, real estate properties here are much cheaper than the average level in San Diego.
2. Pacific Beach
- Median Property Price: $700,000
- Traditional Rental Income: $2,650
- Traditional CoC Return: 2.3%
- Traditional Cap Rate: 2.3%
- Airbnb Rental Income: $3,230
- Airbnb CoC Return: 3.7%
- Airbnb Cap Rate: 3.7%
- Airbnb Occupancy Rate: 51.8%
Another great neighborhood to invest in San Diego real estate is Pacific Beach, where Airbnb is more profitable. However, prices are relatively high.
3. Point Loma Heights
- Median Property Price: $495,000
- Traditional Rental Income: $2,740
- Traditional CoC Return: 3.1%
- Traditional Cap Rate: 3.1%
- Airbnb Rental Income: $1,670
- Airbnb CoC Return: 2.7%
- Airbnb Cap Rate: 2.7%
- Airbnb Occupancy Rate: 60.2%
If you are interested in traditional real estate investing and being a long-term landlord, think about Point Loma Heights as the location for your next income property purchase.
4. North Park
- Median Property Price: $563,000
- Traditional Rental Income: $2,140
- Traditional CoC Return: 2.1%
- Traditional Cap Rate: 2.1%
- Airbnb Rental Income: $2,520
- Airbnb CoC Return: 2.8%
- Airbnb Cap Rate: 2.8%
- Airbnb Occupancy Rate: 52.1%
You could also take a look at North Park when choosing where to invest in the San Diego real estate market. Traditional and Airbnb yield about the same return on investment.
Related: The Difference Between an Airbnb and Traditional Investment Property
If you have become convinced that the San Diego real estate market is the right location for your next investment property, you already know which places to focus on within the city. Head out to Mashvisor to explore specific properties in your selected neighborhood to make the best real estate investment decision.