Buying An Investment Property In Southern California
Real estate investing is a tried-and-true path to secure a stable cash flow and passive income, and the stunning west coast region of Southern California continues to top the list of desirable locations for any real estate investor.
The Golden State, with its unparalleled natural beauty and temperate climate, is a dream destination for travelers, retirees, families, and young professionals. And a high level of development around prime cities and coastal areas means top revenue from rental income and property sales.
2021 brought a nationwide boom in residential property values, but the market has leveled out and even turned in favor of buyers in many neighborhoods. For long-term growth, Southern California remains an attractive target for buying an investment property.
Buying investment property: What’s the process?
Preparation, research, and the right professional contacts are key to successful real estate investing. Start with these steps:
Identify your goals and resources
What is it that appeals to you around real estate investment, and how can you match your knowledge, skills, and resources to the process? Consider your:
Budget, including how much you can pay upfront and how much you can risk (closing costs, property taxes, rent, money down, etc.)
Maintenance capabilities and whether you’ll be a hands-on property manager
Return goals, such as monthly income, capital gain, home equity, or a retirement asset
Tax and accounting consulting needs
Mortgage interest if you’re planning to finance property investing through other means
Based on these factors, you can determine your best game plan to identify a good investment.
Balance financing and timing
When you look at your budget, pair it with a timetable of when you’ll need to tie up or risk funds. Beyond the actual sale price, this includes:
Inspections and closing fees
Earnest money or deposits
Cost of repairs and upgrades
Renovation downtime prior to a resale or resumption of rental income
Property taxes, especially for annual or biannual tax periods
Time on the market prior to resale
Plus, if you invest in special-situation real estate such as probate, foreclosure, as-is, or for-sale-by-owner properties, you may need to extend the anticipated times for several of these phases.
Target the right location
In the real estate market, location is king when it comes to successful real estate investing. Your research should include the following:
Median home price
Historical home value trends and future predictions
Current demographics and anticipated shifts
Living condition indicators: crime, school ratings, parks, access to nearby cities, etc.
Local economy and job market
Potential regulatory, industrial, or construction changes that will affect the value
Many of these factors are the same as you would consider when searching for your own home, but you’re analyzing profitability versus personal preference. In general, you’re looking for growing communities with positive quality of life ratings and business opportunities for residents.
As an investor, consider a location’s:
Historical rent price trends and future predictions
Average rental income
Occupancy rate
Average cash-on-cash (CoC) return
Shop for properties
Once you settle on key locations, you’re ready to start the search for the right property. The best way to get results? Let’s connect. As an experienced investor myself, let’s discuss the types of properties you’re targeting, and the locations you’re investigating.
A skilled agent can:
Provide a comparative market analysis (CMA)
Facilitate a rental property analysis (CoC return, capitalization rate, rental income, etc.)
Locate specific opportunity sales such as probate
When you shop for your own home, it might involve falling in love with the master suite or envisioning your family gathering for the holidays around a fireplace in the great room. But as an investor, you don’t need romance—instead, you need to calculate the dollar return on every choice and feature.
I can identify and evaluate:
Sound construction with cosmetic defaults
Cul de sac and large lot properties
Homes with high-resale features such as open floor plans, large kitchens, multiple baths
Ready to browse? Search our listings for Southern California properties.
Make the deal
Negotiation is critical to closing the right deal. Remember, you’re not married to this property—instead, you’re looking for the best opportunity. If a seller isn’t open to your offer, be ready to let go and move on.
To improve your negotiation strength:
Craft offers with seller situation and motivation in mind
Extend creative counteroffers not limited to money
Know your walkaway limits for both money and time
Include an escalation clause
Best locations to buy Southern California investment property
With statewide home prices shown to be on the rise in the first quarter of 2023 and into 2023, California is ripe for real estate investment. But prices and rental rates vary widely in the third-largest state in the nation, so how do you get started?
Below we’ve rounded up some of the top locations for investment opportunities.
#1: Palm Springs (Riverside County)
The largest resort city in the Colorado Desert’s Coachella Valley, Palm Springs is a unique blend of luxury and stunning landscape. For investors, the relatively low median home value compared to high house rent puts Palm Springs at the top of the list:
Median home value: $398,100
Median price for all rentals: $1,199
Average rent for houses: $10,687
Dwellers mix: 36% renters, 64% owners
Median household income: $57,916
#2: Joshua Tree (San Bernardino County)
45 minutes northeast of Palm Springs, you’ll run into Joshua Tree, an unincorporated community that hosts the visitor center and west entrance to the Joshua Tree National Park. You’ll find an astonishingly low median home value and the opportunity to rent to nature-loving tourists and locals:
Median home value: $161,800
Median price for all rentals: $944
Average rent for houses: $4,300
Dwellers mix: 47% renters, 53% owners
Median household income: $42,263
#3: Riverside (Riverside County)
Founded in the 1870s, Riverside boasts historic architecture, sights, and museums. Its economy includes light industry manufacturing, and it’s a tourist and filming destination:
Median home value: $389,500
Median price for all rentals: $1,466
Average rent for houses: $3,202
Dwellers mix: 45% renters, 55% owners
Median household income: $72,738
Notable ranking: #43 of Niche’s Best Cities for Outdoor Activities in America
#4: Pomona (Los Angeles County)
Less than an hour from L.A. with median home values at about 30% less than the city of angels, Pomona is a west coast suburban city with significant rental opportunities:
Median home value: $420,600
Median price for all rentals: $1,406
Average rent for houses: $3,090
Dwellers mix: 47% renters, 53% owners
Median household income: $62,407
#5: Santa Ana (Orange County)
Santa Ana is close to L.A. but is more than a suburb, with a thriving arts community, museums, galleries, and rich architecture. Slightly over half its inhabitants are renters:
Median home value: $525,900
Median price for all rentals: $1,626
Average rent for houses: $4,500
Dwellers mix: 54% renters, 46% owners
Median household income: $72,406
Notable rankings:
#33 of Niche’s Best Cities for Outdoor Activities in America
#57 of Niche’s Healthiest Places to Live in America
#6: Santa Clarita (Los Angeles County)
Santa Clarita is surrounded by three mountain ranges and boasts numerous city and county parks plus Six Flags Magic Mountain theme park right next to the city limits. Plus, at just 30 miles outside of Los Angeles, this is a prime location for both short- and long-term rental property investment:
Median home value: $564,500
Median price for all rentals: $2,003
Average rent for houses: $3,874
Dwellers mix: 30% renters, 70% owners
Median household income: $100,932
#7: Anaheim (Orange County)
A half hour from Los Angeles and the home of Disneyland, Anaheim is a must for real estate investors considering short-term rentals for tourists and visitors. Its fairly equal division of renters and homeowners and high ranking as a healthy, diverse city in the highly desirable Orange County offers long-term rental opportunity as well:
Median home value: $602,400
Median price for all rentals: $1,743
Average rent for houses: $4,194
Dwellers mix: 54% renters, 46% owners
Median household income: $76,723
Notable rankings:
#15 of Niche’s Best Cities for Outdoor Activities in America
#51 of Niche’s Healthiest Places to Live in America
#8: Simi Valley (Ventura County)
This Los Angeles suburban city is home to excellent public schools, many parks, and moderate political views. There are fewer rental properties but single-family home rental income runs higher than many southern California locations:
Median home value: $612,700
Median price for all rentals: $2,137
Average rent for houses: $5,027
Dwellers mix: 28% renters, 72% owners
Median household income: $99,245
#9: San Diego (San Diego County)
Established in 1769, San Diego is the oldest settlement in California and is currently the second-largest city in the Golden State. Dive into specific neighborhood research when you’re ready to shop, but across the board, San Diego is a long-time favorite for California real estate investment:
Median home value: $629,500
Median price for all rentals: $1,770
Average rent for houses: $6,187
Dwellers mix: 53% renters, 47% owners
Median household income: $83,454
Notable rankings:
#3 in U.S. News’s Best Places to Live in California
#23 in Niche’s Cities with the Best Public Schools in America
#26 in Niche’s Best Cities for Outdoor Activities in America
#10: Thousand Oaks (Ventura County)
Logically named for its many oak trees, Thousand Oaks is a highly desirable suburban city just 15 miles outside of Los Angeles. A single-family property will cost you, but house rental income runs high:
Median home value: $751,900
Median price for all rentals: $2,207
Average rent for houses: $8,154
Dwellers mix: 31% renters, 69% owners
Median household income: $108,377
Notable rankings:
#7 of Niche’s Cities with the Best Public Schools in America
#21 of Niche’s Healthiest Places to Live in America
#11: Santa Barbara (Santa Barbara County)
Situated between the Santa Ynez Mountains and the Pacific Ocean, Santa Barbara is located on the longest south-facing section of the west coast, nicknamed “The American Riviera” for its Mediterranean climate. The city is home to four universities, a large service sector, and a thriving tourism and resort economy:
Median home value: $1,082,300
Median price for all rentals: $1,874
Average rent for houses: $15,529
Dwellers mix: 59% renters, 41% owners
Median household income: $81,618
Notable rankings:
#5 in U.S. News’s Best Places to Live in California
#13 in U.S. News’s Best Places to Live for Quality of Life
Ready to look at investment properties?
If you’ve weighed the pros and cons and are ready to enter into real estate investment for the first time—or add a new property to your current inventory—the next step is to talk to an experienced agent in this area.
