Best Cities in California for Rental Property ROI

6 min readJul 4, 2018

Are you in search of better ROI on your property investments? Are the best returns on property in 2018 in California or are you better off with rising markets in other states?

To find the best properties, whether it’s California, Florida, South Carolina, or Texas, not only will you have to assess each city for opportunities, you’ll have to outcompete a growing army of property investors.

The playing field for investors has changed and it’s drawing a lot of new investors in. Money is fleeing the stock market for real estate including single family homes and multifamily developments. And rental income property is the hottest ticket and a good hedge againt recession.

Rental Property Income Investing is Undergoing a Revolution of Sorts in 2018

Much of the growth of investment in this sector is from those smaller investors and firms owning 3 to 100 properties — what we might call SMB property investors. Why are they doing it? Because they can.

New efficiencies in acquisition, financing, and property management are fueling a strong growth in property portfolios of 3 to 10 rentals and from 11 to 100 rental properties.

Screen Capture courtesy of Attomdata.com

More Investors and More Property Managers

This growth in the ability to buy and manage properties might confuse some governments and industry experts who claim it is speculation that’s driving up property prices and rental prices. It could simply be the result of more competition and a new ability for most Americans to participate in buying real estate for profit or for retirement income.

Mortgage financing from banks that were otherwise not available before are now being used. And now it’s possible to manage properties in distance cities efficiently and effectively. The money is there and now they can leverage it better for income property profits.

The biggest trend in property management is everyone is moving from paper and spreadsheets to property management software that lets them handle many more properties. The multifamily market in particular allows big increases in properties which can allow some investors and property managers to move up to 50 to 100 property portfolios.

New property management software in particular, in combination with improve property management companies are taking the risk out of investing out of state. And President Trump’s removal of regulation has allowed small local and regional banks to thrive. These banks are serving smaller property investors and allowing them to leverage their wealth better to buy and rent more properties.

But Should California be Your First Choice?

California is one that always draws keen interest. Maybe it’s the beaches and ocean views or maybe it’s the perfect weather, or it’s just the employment situation. Google, Oracle, Wells Fargo, Apple, Intel, Synnex, and many more of the biggest US corporations are located here.

And if you’re a Californian, you may prefer to keep your money within the state, in properties accessible for a yearly visit, and in a familiar regulatory environment. Better the devil you know. Other cities across the US seeing high rises in rent might be hit soon with rent controls and high tax rises.

However, of all the states, California’s regulatory regime is the most repressive. Will Trump’s mission of deregulation of offshore oil drilling, housing development restriction, and mortgage lending keep this state’s real estate market healthy?

California Housing Report 2018

As you can read in the California housing report for 2018, construction is on the upswing with new developments in Los Angeles, San Francisco and San Diego. And see the Los Angeles rental price and San Francisco rental price reports for apartment rental demand.

California however, particularly the major metros of San Francisco, San Jose, Sacramento, Los Angeles, Orange County and San Diego have ultra high property prices. Whether it’s single detached homes, townhouses, condos or apartments, California rental prices reflect low rental availability and strong employment numbers.

It’s a fundamental of property investing, the law of supply and demand, and that means prices in California will likely always be high. If capital appreciation is expected to be low, the rental price of a newly refurbished unit could be lucrative. It depends on how hard you search and how creative you are in developing properties in the Golden State to rent them.

Attom Data’s Q1 2018 Property Rental Report found that rents are rising faster than wages in 84% of cities in the US. Tough for renters but a solid situation for investors and property management companies. The Attom Data report also discovered that California cities generate some of the lowest potential annual gross rental yields for 2018.

City Annual Gross Rental Yield Predicted San Francisco Oakland 4.1% Santa Clara 3.6% Los Angeles 4.9% San Diego 5.5% Sacramento 6.0% Riverside 5.6% San Bernardino 7.1% Santa Barbara 6.6% Ventura 5.0% Solano 6.1%

Low Risk High Return

The question then, might be whether you trust the growth and sustainability of the economies of those cities in the south, desert states, and the midwest?

Capital appreciation and rent growth in cities such as Charlotte, Tampa, Atlanta, Greensboro, Orem, Columbia, Augusta, Jacksonville, Springfield and others look very inviting with an annual gross rental yield of 11% to 14%. The best you might do in California’s housing market in 2019 might be 8%.

Yet, if the US economy should falter, will California’s cities will retain and regain their value and rent performance fastest? That’s the long term view.

What’s not discussed is how much prices in other states would fall if an economic fallout occurred. Investors fleeing the stock markets are looking to recession proof their wealth, but are these current high yield cities going to sustain? Long term might favor California.

You can see a fuller list of the best California cities here and in the California housing market report. Take a closer look at the Los Angeles housing market and the San Francisco housing market.

If you’re ready to invest outside of California in the array of cities enjoying good economic growth, we’ll cover those in our next post. After all, 14% yield is worth a closer look.

Does your property manager or landlord have the digital software tools to help you grow your return on investment? The best property management software is more than just apps. A solution such as ManageCasa helps you streamline online payment, lease management, tenant communications, and accounting. Time is money. Try out ManageCasa and see how you can save a lot.

Originally published at blog.managecasa.com.