Located in Northern California, San Francisco sits at the tip of a peninsula bordered by the Pacific Ocean and San Francisco Bay. The city is home to over 880,000 people making it the 4th most populous city in the State of California and the 13th most populated in the United States. The rate of population growth is forecast to be near the national rate in the next year, and with this growth comes more tenants, which is great news for current and future San Francisco real estate investors. In fact, more than 63% of residents in the city live in rental properties as opposed to owning their own homes, according to NeighborhoodScout.
Not only has the San Francisco rental market been leading the nation for years, but its economy has also made a mark on the nation and the world. The city is located at the halfway point between London and Tokyo, making it a world economic center. Because of this, a major part of the local economy is shipping and trade. The city is also a major banking and financing hub as it is home to some of the largest banks in the US as well as over 30 international financial institutions. San Francisco is known as a major tech center. The neighborhood of South Park, specifically, is home to many rising tech companies. Other leading industries include tourism, apparel manufacturing, healthcare, and education.
Even though the city currently boasts a strong and growing economy, the San Francisco real estate market and its affordability could have a negative impact on its health. San Francisco real estate properties are notoriously known for being expensive, and some experts see the continuing appreciation as being detrimental to the growth of the economy. This issue is further exacerbated by the shortage in housing inventory which has lead to a serious imbalance between supply and demand. This can be attributed to the rising costs of construction as well as stringent regulations. Not only has this caused an increase in property prices, but local rental rates continue to rise as well. However, according to the annual real estate report put out by the PWC, there are some solutions on the horizon. With new construction processes planned for implementation in the San Francisco housing market as well as an increase in urbanized suburban developments, the real estate forecast points to some breathing room in the near future.
According to the same report, San Francisco ranks in the top 10 US markets in the Pacific Region for overall real estate prospects. Essentially, if you can afford to buy a San Francisco investment property, then the market can be a great place to invest in real estate.
|Facts and Market Trends in San Francisco|
|Homes For Sale432|
|Traditional Vacancy rate6.70%|
|Airbnb Occupancy Rate77.02%|
|Median Rent Price$4,505|
|Median Days on Market67|
|Price to Rent Ratio30.7|
|Average Cap Rate|
|Average Rental Income|
|Median Household Income$78,378|
|RENTAL STRATEGY||STUDIOS||1 ROOM||2 ROOMS||3 ROOMS||4 ROOMS|
Naturally, with the high real estate property prices in the San Francisco real estate market comes significant appreciation over the years. Since Q1 of 2000, properties here have experienced a total appreciation in value of 172.36% for an annual average growth rate of 5.34%. This puts the San Francisco housing market among the best places to invest for real estate appreciation in the nation.
Even with the tight inventory and the high property prices, the city is currently a buyer’s market. So, while you may still pay premium prices for a San Francisco real estate investment, your chances for getting a good deal if you negotiate are high at the moment.
San Francisco is the birthplace of Airbnb and its headquarters can currently be found in the city. Since its launch, local officials have worked with the company to legalize and regulate the home-sharing industry in the San Francisco real estate market. Even though the practice is legal, the city has some of the strictest Airbnb regulations in the US. For example, if you’re looking to invest in a non-owner occupied rental property, know that it is outlawed. In order to operate a short-term rental legally in the city, the property must be your permanent residence, meaning you live on site for at least 275 days out of the year. In addition to this, Airbnb San Francisco hosts cannot rent out a property for more than 90 days while not being present overnight.
Another important short-term rental law is that you must be registered with the local Treasurer and Tax Collector as a business entity. You must also obtain a certified host certificate from the City of San Francisco’s Office of Short-Term Rentals. If you’re not, Airbnb and other vacation rental websites will be forced to remove your listing from their website. San Francisco Airbnb hosts are not allowed to have more than one vacation rental property listing at a time.
Airbnb rental properties are also subject to San Francisco’s lodging tax which is 14%. Airbnb collects this tax on behalf of its hosts, but if you list with another vacation rental website, you will be responsible for collecting and remitting the tax to the city. Any violations of these Airbnb regulations will result in serious fines.
Despite these strict short-term rental laws, Airbnb growth is widespread in the city. In February of 2019, there were more than 7,800 listings - an increase of 22% since the laws were put into effect in early 2018.