Best Cities in California for Rental Property ROI

June 23, 2021

Best Cities in California to Buy Rental Investment Property?

Looking for an investment condo or house to rent in the Golden State? A lot of people still are.

The California housing market is coming back slowly. Home prices are rising and rents are on the rise too. It’s been a rough time through the pandemic, but with buyers reconsidering the buy vs rent question and Covid 19 fears easing, California real estate and rental properties here is coming back into conversations.

Young people have abandoned their student accommodations and moved back in with their parents. Of course, the reverse is coming in a few months when college students return to formal in person classes next fall.

Keep in mind some experts are calling for dropping house prices and lowering rents in 2022/2023. Yet, if you look at California rent prices of recent, you’ll see they’re still the highest and rising quicker. That fact is, buyers can’t afford these prices. As an investor, the rent yield and ROI in California is still positive. The economic recovery might be rocky, and California cities remain some of the best cities to buy property.

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Prices Plateauing for Now

Despite the outward migration in 2020, higher taxes, business shutdowns, government funding setbacks, California will regain its luster as one of the top housing markets in 2021. At least with its shortage of available housing, housing prices will be on the rise and post Covid 19, those Silicon Valley apartments will start to fill up again.

And as rent prices rise, this is an unusual opportunity for investors to find towns and cities to capitalize on the demographic trends that will evolve in 2022.

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The Best of California

Below, you’ll find a revised, updated list of best California communities and cities to buy rental income property.

These are communities offering the best neighborhood character, schools, safety, jobs, and other key factors for homeowners, investors as well as renters. Check out the rental property report for more info on US rental housing. and best cities to buy rental property. Surprisingly, the experts pick Northern California cities as more desirable.

What are Rental Property Investors/Management Firms Doing?

Much of the growth of investment in the rental income property 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.

Let’s get to some great new data from Attom Data Solution about the California cities. They found that:

In the San Francisco/Oakland region, rent yields are down 6% however renter wages are up 18% in 2021 and gross annual yield is 4%.

In Los Angeles, rent yields dropped 7%, while renter wages are up 9% in 2021 and gross annual yield is 4.7%.

In San Diego, rent yields dropped 8%, while renter wages are up 11% in 2021 and gross annual yield is 5.2%.

If that deters you, look at some smaller centers. These remote or Northern communities will remain in demand as work from home employment trends continue through 2021.

Butte County where rent yields rose 7%, while renter wages are up 9% in 2021 and gross annual yield is 8.1%.

Shasta/Redding rent yields rose 20%, while renter wages are up 9% in 2021 and gross annual yield is 7.6%.

and in Sonoma where rent yields rose 1%, while renter wages are up 11% in 2021 and gross annual yield is 5.6%.

Most California cities went through a rough period of declining yields, but with rising wages and employment it comes down to picking the right rental types in the best neighborhoods.

Screen Capture courtesy of Attomdata.com

But Should California be Your First Choice?

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

Google’s Headquarters in Mountainview, California. Photo courtesy of wikipedia commons.

California Housing Outlook

As you can read in the California housing predictions, construction was on the upswing with new developments in Los Angeles, San Francisco and San Diego. Lately, it’s flat which is helping raise resale prices.

See the Los Angeles, San Francisco and San Diego, and Oakland housing reports for apartment rental demand.

The prices in California’s major cities makes them a tougher place to buy and rent out profitably. Yet some urban neighborhoods could have possibilities. See the lists below of the best neighborhoods in Los Angeles and the Bay Area.

Top Ten from Home Snacks

Here’s Home Snack’s Top Ten look at the best communities to buy in California for 2020:

Buellton
Williams
Big Bear Lake
Dos Palos
Calistoga
Indian Wells
La Habra Heights
Woodside
Solvang
Gustine

Niche.com Chimes in with Their Top 25 Best Communities to Buy.

Lincoln Village, Los Angeles
Green Acres, Sacramento
Seal Beach, Los Angeles
Winchester, Riverside
Homeland, Riverside
Woodbridge, CA
Salida, California
Sky Valley, California
Calimesa, California
Folsom, California
Camino Tassajara, Oakland
Val Verde, Los Angeles
Kingsburg, California
Mountain House, California
Lexington Hills, San Jose
Sunnyside, California
Mentone, Los Angeles
Desert Edge, California
Calimesa, San Bernardino
Valle Vista, Riverside
El Dorado Hills, Sacramento
Palo Alto, Bay Area
Los Altos, San Jose
Taft, California
Clovis, California

Question: Which Cities will see the Highest Improvement by 2022?

The fact so many rental apartments and houses/townhouses suffered poor returns in the last means certain communities are ripe for a big comeback by 2022. By then, the reported rent yields from Attom Data will look far different.

You can see a fuller list of the best California cities with high yield potential here and in the California housing market report. Take a closer look at the Los Angeles housing market and the San Francisco housing market. Compare to rent yields reported across the US.

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