So you’ve had your mind on San Francisco real estate, but you think it’s challenging? You’re not wrong.

It’s no secret that San Francisco is one of the most in-demand, most profitable, yet most expensive real estate markets in the US. It’s almost become impossible to invest in the City by the Bay as property prices continue to increase and as supply and inventory remain at a record low. But if you’re wondering how investment properties in San Francisco are even doable, keep reading.

Related: Buying Investment Properties in San Francisco

Investment Properties in San Francisco: The Challenge

Affordability Crisis

If you’ve been researching for investment properties in San Francisco, you probably came across phrases like “low inventory,” “shortage in supply,” and “soaring prices.” You’ve been reading correctly.

Because of the spike in prices for investment properties in San Francisco, the search for an affordable and profitable investment property is very difficult. And even if you do manage to find a good property, there are many people who could and would outbid you – it’s a very competitive market to say the least. Moreover, the high property prices, strong tenant rights, rent control, low rent-to-home-value ratio, among other factors all contribute to making the real estate market in San Francisco very difficult.

Additionally, rental properties are usually a great idea in markets with a shortage in supply. In San Francisco, that is not the case. The rents are simply too high, so achieving return in the short run may be difficult.

Airbnb Legislation Problems

Some people have listed their homes on Airbnb as a way to invest and make some extra money, but there are challenges with that as well. Airbnb San Francisco is currently one of the most controversial and notorious at the moment.

To begin with, it’s important to describe some of the aspects of legal legislation in San Francisco. First, San Francisco Airbnb hosts are required to obtain a $250 permit from the Office of Short Term Rentals once every two years, in addition to a short-term Residential Rental Registration number. Additionally, San Francisco currently imposes a 14% Transient Occupancy Tax (TOT Tax) which is paid by the guests at the time of booking. San Francisco also requires Airbnb hosts to be present at their property for 275 of the year, meaning the host may only rent his or her property for 90 days a year without being present.

Another challenge Airbnb San Francisco is facing is the fact that according to the Office of Short Term Rentals, 82% of its hosts are not registering and are thus breaking the law. Because of this, the city passed a law earlier in June to charge Airbnb $1,000 per day for advertising properties which are unregistered in the city. The City believes that short term hosts are contributing to low inventory and supply shortages.

However, Airbnb recently had a victory in the courtroom after Ed Lee, Mayor of San Francisco vetoed the bill that proposed to limit homes from being rented out for more than 60 days, instead of the current allowance which is 90 days.

Related: San Francisco’s New Rule On Airbnb Investment Properties

Investment Properties in San Francisco: How It’s Possible

Despite the financial and legal issues, owning investment properties in San Francisco is still feasible. Before anything, focus on timing and affordability. You need to take the time to figure out where you are financially and see what can and can’t you afford of investment properties in San Francisco.

You must also take your time to find a good investment property that may be located outside of the City. Use Mashvisor to look for investment properties in San Francisco and surrounding areas. Mashvisor’s investment analytical tools help you view information on CoC return, cap and occupancy rates, rental income, and optimal investments in different neighborhoods in your desired city. The interactive investment property calculator will help you decide which area will give provide the highest returns.

Despite the challenges currently faced by Airbnb, it still remains a viable solution to the unaffordability in the traditional San Francisco real estate market. Plus, according to Mashvisor’s data on investment properties in San Francisco, most Airbnb rentals achieve a higher rental income than traditional rental properties.

Another tip we have is to try to look for investment properties in San Francisco in up and coming neighborhoods whose prices haven’t spiked just yet. These may include neighborhoods that have bounced back quite well after the recession, but have not become too popular to become expensive. If you can afford it, definitely go ahead and invest in established neighborhoods, but remember to check Mashvisor to find the best among different investment properties in San Francisco.

Investment Properties in San Francisco: Is It Worth It?

In a nutshell, yes. In the short run, investment properties in San Francisco are not the best for achieving instant cash flow. However, the great thing about investment properties in San Francisco is they’ve held their value during economic downturns. Additionally, they’ve always appreciated in value. This is why we recommend investing in San Francisco real estate if you’re in it for the long run. It’s definitely one of the best real estate investments you can make in this country. So if you’re smart and knowledgeable about your investment, you cannot go wrong.

Related: The Best California Real Estate Markets: Affordable and Not So Affordable Areas