California may be one of, if not the best place to buy rental property. Let’s take a look at the Golden State as an investment location.
Rental property investments are a great way of building wealth and equity. However, where you invest determines your chances of investment success.
Table of Contents
- Is the California Real Estate Market Really Worth It in 2023?
- Should You Be Concerned About the California Exodus?
- Long Term vs Short Term Rental in California in 2023
- 20 of the Best Places to Invest In California in 2023
In this blog, we will take a closer look at the California real estate market and examine why it is a good investment location for rental properties.
While California remains one of the most prominent states in the US, not every rental property investment may be right for you. Depending on your budget, return goals, and maintenance capabilities, one location in California may be better suited for you than another.
California is a diverse state with a booming economy and a wide range of industries. It has everything from movie sets to fintech startups, bringing both local and international visitors to every corner. Now, the question is: how do you determine the best place to buy rental property here? Just exactly where are the best places to invest in California in 2023?
With the vast options available, it may be difficult to figure out the best place to invest in real estate in California. Not to worry, if you have been looking for the top markets for buying California investment properties this year, this guide is for you!
Is the California Real Estate Market Really Worth It?
Before looking for the best place to buy rental property in California, let’s see if the California housing market is really worth it. The California real estate market is considerably more expensive than neighboring states. However, the returns that investors see are on a whole new level compared to most places nationwide.
The California Association of Realtors (CAR) reported recently that home prices are expected to go up 5.2% going into 2023. It also expects housing affordability to go down 23% next year, up from a projected 26% back in 2021.
This means that by simply investing in California income properties rather than in another state, you will most likely see a larger real estate appreciation on your property in the next few years. The potential return on investment (ROI) could offset the initially larger price tag.
In addition, California’s state laws and diverse cultural industries offer its investors an array of benefits, including the following:
1. Growing Employment Market
To date, since COVID-19 disrupted almost every industry, California remains in the top 10 states for job opportunities in 2022 and going into 2023. And according to the University of California Riverside (UCR), the California labor market continues to expand, albeit at a slower pace in September 2022.
As of September 2022, California has a 3.9% unemployment rate which is still elevated relative to the overall national rate of 3.5%.
California should continue seeing a high demand for rental properties going into the 2023 US housing market. The continued strength in rental demand should make the state the best place to buy rental property.
2. Low Taxes and Proposition 13
It is no secret that California is home to some of the most expensive real estate markets in the nation; however, it also offers some of the lowest property taxes in any given year. Due to the law known as Proposition 13, general tax properties are limited to just 1% of the total market value of your property and are subject to a 2% increase limit every year.
With the low and controlled property taxes, investors are more likely to see a positive return when they buy California investment properties. This makes buying investment properties all the more attractive to both beginner and experienced investors.
3. High Rental Demand and Increasing Rental Prices
One would think that, with the on-again/off-again surges of COVID-19, rental prices would need to be lowered to draw renters in. However, this is not the case in the California real estate market.
As of August 2022, California rental rates went up 22.04% year-over-year. This is reflective of the high demand for long term rental properties in California. With the increase in rental prices, investors should take this opportunity to realize higher returns on their investments.
As of October 2022, data collected and analyzed by Mashvisor, an industry-leading real estate data analytics platform, shows the average monthly rental income in California is $3,176. The figure is significantly above the national average.
4. Increasing Property Value
Each year, properties in all the best places to invest in California see a significant increase in market value. Median home prices across the state were expected to rise 5.2% in 2022. It means that if and when investors want to sell their property, they are almost always sure to see a significant return from their original purchase cost.
As of October 2022, Mashvisor estimates the median property price in the California real estate market at $903,256. Considering an expected appreciation of 5.2% going into 2023, you can expect your income property’s value to go up significantly over the course of the next 12 months.
With such a favorable appreciation in value, California makes a strong case for itself as the best place to buy rental property.
Should You Be Concerned About the California Exodus?
There has been a lot of talk about the California Exodus as an effect of the COVID-19 pandemic. This is a phenomenon where people are fleeing California and subsequently lowering the real estate value of the state. Even as we prepare to enter 2023, this is still a point of concern for investors.
However, studies have shown that statistically, there has been no significant change in the number of people leaving California compared to pre-pandemic times.
Though studies have shown that the population of California has fallen due to in-state people leaving during the pandemic, the change has not been too drastic. In 2016, 16% of in-state people left California. Between April 2020 and September 2022, the state lost around 352,000 residents.
While there is an increase in in-state people moving out, experts remain positive that it will not hurt the real estate market in California. This trend will not harm the state’s reputation as the best place to buy rental property in 2023.
California continues to draw in multi-million business people and companies that keep its real estate value promising to investors. As a matter of fact, the California real estate market is expected to see a 5.2% rise in property prices as we end 2022 and begin 2023.
In such a situation, you can benefit from a significant return on investment in the best places to invest in California because, in general, it is still a place with a very strong real estate market.
With this being said, if you are looking to invest in California income properties, the California Exodus should not be too much of a concern or factor when making your decision.
Long Term vs Short Term Rental in California in 2023
Given the potential for lucrative returns, many investors are trying to determine where is the best place to invest in real estate property in the Golden State. The best places to invest in California in 2023 may differ from investor to investor, depending on different factors.
To fully benefit from the best rental market in California, investors must decide if they are looking for an investment property as a long term rental or a vacation rental property.
While both have their merits, choosing one or the other can make or break your investment returns. Here are some things to consider before buying an investment property for long term and short term rentals in the California housing market:
1. Occupancy Rate
When you own a rental property, whether it is a long term or a vacation rental property, the main goal is to get someone to constantly rent it so you can generate income. In a long term rental setup, investors will normally see constant occupancy as leases are signed for at least a year.
Short term rental properties, on the other hand, are seasonal. It means there may be times when no one is renting the property, whereas other times might benefit from a strong short term rental demand.
If you are looking for a more stable and predictable occupancy rate, places with a more long term rental market may be the better choice for you.
2. Property Management Efforts
Most people buy investment properties for passive income, but there is still some level of effort needed to maintain and manage both long term and short term rentals.
However, short term rentals do require far more on a daily basis as opposed to long term rental properties. Short term rentals need to come fully furnished and cleaned multiple times each month for every new guest.
In contrast, long term rentals can come relatively unfurnished and require less monthly maintenance from the investor’s end. If you want a more hands-off investment, short term rentals may not be the right property investment strategy for you.
Take this into consideration before you set out to buy an investment property to turn into a rental property.
3. Airbnb Regulations
With short term properties listed on Airbnb, it is important to remember that you will need to deal with a third-party company handling your property and also adhere to the local short term rental regulations. Though it may pride itself as the best place to invest in real estate, California is not the most Airbnb-friendly state in the US housing market.
In particular, for Airbnb Los Angeles and Airbnb San Diego, you need to run an owner-occupied rental to be legally listed. If you are looking to buy an investment property to list on Airbnb without needing to live in it, you should avoid these places when buying a property.
4. Overall Income
While a short term rental property may be a slightly more hands-on investment, it does have the potential to generate more income than a long term rental property. A long term rental property will have a fixed price every month throughout the entire year.
A California short term rental property, on the other hand, has the potential to generate more rental income as you can charge more per night on average, depending on the season.
5. Return on Investment
The ultimate factor which should drive any real estate investment decision is what rate of return an income property promises to bring.
Within the same city and even neighborhood, long term and short term rental properties generate very different returns on investment. Thus, you should conduct neighborhood analysis and investment property analysis before deciding which rental strategy to go with to ensure maximum return.
Below are the most important numbers on the California rental market that every investor should take into consideration before buying an investment property. These came from Mashvisor’s data as of October 2022:
- Median Property Price: $903,256
- Average Price per Square Foot: $647
- Days on Market: 67
- Number of Long Term Rental Listings: 44,827
- Monthly Long Term Rental Income: $3,176
- Long Term Rental Cash on Cash Return: 2.48%
- Long Term Rental Cap Rate: 2.50%
- Price to Rent Ratio: 24
- Number of Short Term Rental Listings: 74,041
- Monthly Short Term Rental Income: $4,412
- Short Term Rental Cash on Cash Return: 3.20%
- Short Term Rental Cap Rate: 3.23%
- Short Term Rental Daily Rate: $234
- Short Term Rental Occupancy Rate: 55%
- Walk Score: 50
20 of the Best Places to Invest In California in 2023
California continues to be a great investment location for both long term and seasonal rentals like Airbnb. While both real estate investment strategies will surely generate income, not all places with a strong long term renters market draw in a crowd for short term rentals, and vice versa.
To find the best places to invest in California, Mashvisor’s real estate data makes it easy to break down all the necessary factors to make the right decision.
No matter what type of rental strategy you’re planning to do, the Mashvisor long term and short term rental data analytics is here to help!
The list below is based on the places which offer the highest long term or short term rental cash on cash return in the California real estate market.
10 Best Places to Invest in California for Long Term Rental Properties in 2023
Here are the best places to buy a long term rental property in California, according to Mashvisor’s data from October 2022:
1. Redlands
- Median Property Price: $678,440
- Average Price per Square Foot: $375
- Days on Market: 64
- Number of Long Term Rental Listings: 143
- Monthly Long Term Rental Income: $2,822
- Long Term Rental Cash on Cash Return: 2.98%
- Long Term Rental Cap Rate: 3.01%
- Price to Rent Ratio: 20
- Walk Score: 85
Search for long term rental properties in Redlands, CA here.
2. Palm Springs
- Median Property Price: $998,098
- Average Price per Square Foot: $536
- Days on Market: 57
- Number of Long Term Rental Listings: 198
- Monthly Long Term Rental Income: $3,708
- Long Term Rental Cash on Cash Return: 2.92%
- Long Term Rental Cap Rate: 2.97%
- Price to Rent Ratio: 22
- Walk Score: 59
3. Riverside
- Median Property Price: $651,637
- Average Price per Square Foot: $393
- Days on Market: 55
- Number of Long Term Rental Listings: 384
- Monthly Long Term Rental Income: $2,779
- Long Term Rental Cash on Cash Return: 2.86%
- Long Term Rental Cap Rate: 2.90%
- Price to Rent Ratio: 20
- Walk Score: 36
4. Hawthorne
- Median Property Price: $964,499
- Average Price per Square Foot: $667
- Days on Market: 49
- Number of Long Term Rental Listings: 101
- Monthly Long Term Rental Income: $3,984
- Long Term Rental Cash on Cash Return: 2.80%
- Long Term Rental Cap Rate: 2.82%
- Price to Rent Ratio: 20
- Walk Score: 87
5. Santa Ana
- Median Property Price: $836,867
- Average Price per Square Foot: $555
- Days on Market: 62
- Number of Long Term Rental Listings: 207
- Monthly Long Term Rental Income: $3,466
- Long Term Rental Cash on Cash Return: 2.71%
- Long Term Rental Cap Rate: 2.74%
- Price to Rent Ratio: 20
- Walk Score: 97
6. Santa Clarita
- Median Property Price: $783,397
- Average Price per Square Foot: $462
- Days on Market: 50
- Number of Long Term Rental Listings: 200
- Monthly Long Term Rental Income: $3,304
- Long Term Rental Cash on Cash Return: 2.64%
- Long Term Rental Cap Rate: 2.66%
- Price to Rent Ratio: 20
- Walk Score: 27
7. Thousand Oaks
- Median Property Price: $983,507
- Average Price per Square Foot: $536
- Days on Market: 44
- Number of Long Term Rental Listings: 276
- Monthly Long Term Rental Income: $3,857
- Long Term Rental Cash on Cash Return: 2.63%
- Long Term Rental Cap Rate: 2.65%
- Price to Rent Ratio: 21
- Walk Score: 66
8. Simi Valley
- Median Property Price: $823,789
- Average Price per Square Foot: $467
- Days on Market: 64
- Number of Long Term Rental Listings: 122
- Monthly Long Term Rental Income: $3,444
- Long Term Rental Cash on Cash Return: 2.62%
- Long Term Rental Cap Rate: 2.65%
- Price to Rent Ratio: 20
- Walk Score: 79
9. Pomona
- Median Property Price: $658,357
- Average Price per Square Foot: $2,245
- Days on Market: 58
- Number of Long Term Rental Listings: 207
- Monthly Long Term Rental Income: $2,756
- Long Term Rental Cash on Cash Return: 2.61%
- Long Term Rental Cap Rate: 2.65%
- Price to Rent Ratio: 20
- Walk Score: 75
10. Anaheim
- Median Property Price: $825,103
- Average Price per Square Foot: $538
- Days on Market: 53
- Number of Long Term Rental Listings: 455
- Monthly Long Term Rental Income: $3,397
- Long Term Rental Cash on Cash Return: 2.51%
- Long Term Rental Cap Rate: 2.53%
- Price to Rent Ratio: 20
- Walk Score: 51
To find the most ideal long term rental properties in California and any location of your choice, click here.
10 Best Places to Invest in California Short Term Rental Properties in 2023
Here are the 10 best places to invest in Airbnb California in 2023.
Here are the best places to buy short term rental properties in California this year:
1. Riverside
- Median Property Price: $651,637
- Average Price per Square Foot: $393
- Days on Market: 55
- Number of Short Term Rental Listings: 205
- Monthly Short Term Rental Income: $4,991
- Short Term Rental Cash on Cash Return: 4.92%
- Short Term Rental Cap Rate: 4.99%
- Short Term Rental Daily Rate: $216
- Short Term Rental Occupancy Rate: 57%
- Walk Score: 36
Search for short term rental properties in Riverside, CA here.
2. Visalia
- Median Property Price: $443,504
- Average Price per Square Foot: $235
- Days on Market: 55
- Number of Short Term Rental Listings: 153
- Monthly Short Term Rental Income: $3,288
- Short Term Rental Cash on Cash Return: 4.75%
- Short Term Rental Cap Rate: 4.86%
- Short Term Rental Daily Rate: $142
- Short Term Rental Occupancy Rate: 55%
- Walk Score: 48
3. Escondido
- Median Property Price: $881,536
- Average Price per Square Foot: $469
- Days on Market: 60
- Number of Short Term Rental Listings: 131
- Monthly Short Term Rental Income: $6,264
- Short Term Rental Cash on Cash Return: 4.63%
- Short Term Rental Cap Rate: 4.68%
- Short Term Rental Daily Rate: $344
- Short Term Rental Occupancy Rate: 51%
- Walk Score: 42
4. Anaheim
- Median Property Price: $825,103
- Average Price per Square Foot: $538
- Days on Market: 53
- Number of Short Term Rental Listings: 786
- Monthly Short Term Rental Income: $5,952
- Short Term Rental Cash on Cash Return: 4.54%
- Short Term Rental Cap Rate: 4.57%
- Short Term Rental Daily Rate: $270
- Short Term Rental Occupancy Rate: 64%
- Walk Score: 51
5. Santa Fe Springs
- Median Property Price: $695,130
- Average Price per Square Foot: $534
- Days on Market: 57
- Number of Short Term Rental Listings: 187
- Monthly Short Term Rental Income: $5,195
- Short Term Rental Cash on Cash Return: 4.46%
- Short Term Rental Cap Rate: 4.52%
- Short Term Rental Daily Rate: $176
- Short Term Rental Occupancy Rate: 64%
- Walk Score: 78
6. Bakersfield
- Median Property Price: $440,130
- Average Price per Square Foot: $535
- Days on Market: 54
- Number of Short Term Rental Listings: 289
- Monthly Short Term Rental Income: $3,175
- Short Term Rental Cash on Cash Return: 4.42%
- Short Term Rental Cap Rate: 4.53%
- Short Term Rental Daily Rate: $168
- Short Term Rental Occupancy Rate: 56%
- Walk Score: 28
7. Paramount
- Median Property Price: $628,412
- Average Price per Square Foot: $469
- Days on Market: 132
- Number of Short Term Rental Listings: 193
- Monthly Short Term Rental Income: $4,605
- Short Term Rental Cash on Cash Return: 4.40%
- Short Term Rental Cap Rate: 4.46%
- Short Term Rental Daily Rate: $190
- Short Term Rental Occupancy Rate: 63%
- Walk Score: 89
8. Chula Vista
- Median Property Price: $784,108
- Average Price per Square Foot: $452
- Days on Market: 57
- Number of Short Term Rental Listings: 251
- Monthly Short Term Rental Income: $5,500
- Short Term Rental Cash on Cash Return: 4.15%
- Short Term Rental Cap Rate: 4.20%
- Short Term Rental Daily Rate: $271
- Short Term Rental Occupancy Rate: 60%
- Walk Score: 29
9. Hawaiian Gardens
- Median Property Price: $888,967
- Average Price per Square Foot: $478
- Days on Market: 37
- Number of Short Term Rental Listings: 166
- Monthly Short Term Rental Income: $4,830
- Short Term Rental Cash on Cash Return: 4.12%
- Short Term Rental Cap Rate: 4.17%
- Short Term Rental Daily Rate: $187
- Short Term Rental Occupancy Rate: 68%
- Walk Score: 90
10. Sacramento
- Median Property Price: $487,049
- Average Price per Square Foot: $349
- Days on Market: 56
- Number of Short Term Rental Listings: 780
- Monthly Short Term Rental Income: $3,189
- Short Term Rental Cash on Cash Return: 3.78%
- Short Term Rental Cap Rate: 3.85%
- Short Term Rental Daily Rate: $155
- Short Term Rental Occupancy Rate: 60%
- Walk Score: 47
Want to find the best short term rental properties in California and any location in the US? Click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.
Making the Most of the Best Rental Market in California
As of 2022, Mashvisor concludes that the above locations are the best places to invest in real estate in California. Going into 2023, the California housing market shows great promise in yielding the highest rate of return on long term and short term rental properties.
As an investor, your quest for the best place to buy rental property might just end with California. But then again, it will still depend on the place of the investment. Location plays a very crucial role in determining the success of an investment. For this reason, you need to make sure you do your research.
Whether you are looking for a long term or a short term rental property, with Mashivor’s readily available data, you should be able to find the best place to invest in real estate.
With Mashvisor’s Property Finder and investment property calculator, you can search for the best investment properties for sale and analyze them in detail without the need to conduct manual real estate market analysis.
There is no need to go into real estate investment blindly. We at Mashivor want to ensure that you have all the information when choosing the best places to invest in California in 2023 and help you make the best decision for your financial growth.