San Diego Real Estate Market Report 2019

San Diego Overview

San Diego is a major city in the US and the birthplace of California.

San Diego’s population of over 1.4 million people makes it the 2nd largest city in the State of California (Los Angeles) and the 8th most populous one (after New York, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, and San Antonio) in the entire US housing market. With a population of more than 4.9 million residents, the San Diego-Tijuana conurbation is the second largest transborder agglomeration between the US and a bordering country after Detroit-Windsor.

The city is best known for its mild climate throughout the year, the extensive beaches, and the natural deep water harbor. It is also a regional healthcare and biotechnology development center.

The most important economic sectors within the San Diego real estate market include defense and military, international trade, biotechnology, and tourism. Due to the deep water harbor, San Diego emerged as the only major submarine and shipbuilding yard on the West Coast. The city hosts the largest naval fleet in the world. San Diego’s geographical location on the Pacific coast and next to Mexico made it a significant commercial port, turning international trade and commerce into another sizeable economic sector. In recent years San Diego has emerged as the 2nd largest biotech cluster in all of the US, following only the Boston area. An important driver of this status has been the University of California, San Diego. This diverse and strong economy with positive annual growth is a major factor in the commercial and residential San Diego real estate market which brings confidence to property investors.

Tourism is yet another major contributor to the economy and the labor market in the city. Nearly 36 million visitors come to San Diego each year, including both leisure tourists and business travelers. The mild climate, the endless beaches, and the numerous attractions have turned San Diego into one of the most important tourist destinations nationwide. Some of the most important and popular tourist attractions include Balboa Park, San Diego Zoo, SeaWorld San Diego, San Diego Zoo Safari Park, Belmont Park, Old Town, Seaport Village, La Jolla Cove, Cabrillo National Monument, and USS Midway Museum. The influx of tourists year-round has turned Airbnb San Diego into one of the major short term rental industries not only nationally but also globally. In 2018 over 1 million Airbnb guests stayed at San Diego vacation rentals, which made San Diego the 2nd most popular Airbnb California destination after Airbnb Los Angeles. San Diego Airbnb hosts generated about $213 million in revenue.

Overall, the San Diego employment market grew by 1.4% in 2018. Job growth in the next 10 years is forecast at 34.9%, exceeding the US average of 33.9%. The average per capita income in the San Diego housing market amounts to $33,789, which is significantly above the US average of $28,555. The median household income equals $65,753, exceeding the US average of $53,482.

Supported by above-average population growth, numerous employment opportunities, a strong and diverse economy, and tourism, the San Diego housing market has emerged as one of the best places to invest in real estate. This competitive market is not predicted to slow down any time soon, which means that real estate investors should hurry up with buying San Diego rental properties before all profitable investment opportunities have been swept by other investors.

San Diego Real Estate Market 2019 Overview

Median Property Price: $813,500
Average Price per Square Foot: $509
Real Estate Appreciation: 144% since 2000 (above the California real estate appreciation rate and considerably above the US average)
Days on Market: 51
Listings for Sale: 821
Price to Rent Ratio: 33 (high)
Buyer’s Market or Seller’s Market: A neutral market
Renters’ Percent of Population: 54%

The San Diego housing market is one of the largest and most significant markets in the California real estate market, of similar significance as the Los Angeles real estate market and the San Francisco real estate market.

The prestigious PwC Emerging Trends in Real Estate: United States and Canada 2020 report ranks San Diego as the 26th US Market to Watch for Overall Real Estate Prospects in the US. Furthermore, the San Diego real estate market is ranked as #29 among US Markets to Watch for Homebuilding Prospects. According to the San Diego real estate market analysis provided in the report, real estate development and redevelopment opportunities are above-average, and investor demand is strong. Importantly, in 2016-2018 the San Diego metro market experienced 1.7% of all US transactions, and this share increased to 1.8% in the first half of 2019. This positions San Diego as the 15th US housing market in terms of total capital commitment. PwC highlights the large population, the strong population growth, and the economic focus on high-tech, e-commerce, and life sciences industries as the main driver of the excellence performance of the San Diego residential, commercial, and industrial real estate market.

A key feature of San Diego real estate are the high property prices. The median price of homes for sale in San Diego exceeds the national median value of $231,000 by 252%. This places San Diego among the rest of places with skyrocketing home values in the California housing market such as the Los Angeles real estate market ($1,069,400) and the San Francisco real estate market ($1,649,900). From investors’ point of view, this means that they should look for the best way to finance the purchase of a rental property in San Diego as cash purchases are nearly impossible.

One of the good San Diego real estate news for investors is that in 2019 San Diego is neither a buyer’s market nor a seller’s market; it is rather a neutral market. Moreover, according to the San Diego housing market forecast 2020, it will remain a neutral market. Real estate appreciation slowed down to about 1.2% last year, and it is expected to reach 1.5% in the coming year. While this is less than the average annual San Diego real estate appreciation rate of 4.7% between Q1 2000 and Q2 2019, it is enough to provide good long term return on investment for San Diego rental properties. At the same time, the forecast rise in San Diego, California real estate prices is not large enough to cause a seller’s market which makes it difficult for first-time real estate investors to find good deals and buy income properties at a fair price. Currently there are 821 houses for sale in San Diego, which gives investors the opportunity to find a profitable rental property which meets all their search criteria and expectations without engaging in bidding wars with more experienced real estate investors or other property buyers. After conducting careful neighborhood analysis and diligent investment property analysis, investors can buy a rental property with a high rate of return in the San Diego housing market. Access to the best real estate investment tools will facilitate their work and support them in making smart investment decisions.

Short term return on investment in the San Diego real estate market is also excellent. This is due to the high demand for both traditional San Diego investment properties and San Diego vacation rentals. More than half (54%) of the residents rent which drives the demand for and profitability of long term rental properties. The 36 million tourists who visit San Diego every year determine the success of the Airbnb San Diego rental business.

All in all, San Diego was and remains one of the best places to invest in real estate in the US.

Best Property Types for Investing in the San Diego Real Estate Market

Single Family Homes for Sale in San Diego, CA: 688
- Median Property Price: $847,900
- Average Price per Square Foot: $523
- Average Monthly Traditional Rental Income: $2,820
- Average Traditional Cap Rate: 1.3%
- Average Monthly Airbnb Rental Income: $3,980
- Average Airbnb Cap Rate: 2.5%
Condos for Sale in San Diego, CA: 39
- Median Property Price: $576,000
- Average Price per Square Foot: $448
- Average Monthly Traditional Rental Income: $2,640
- Average Traditional Cap Rate: 1.6%
- Average Monthly Airbnb Rental Income: $3,060
- Average Airbnb Cap Rate: 2.6%
Townhouses for Sale in San Diego, CA: 58
- Median Property Price: $660,400
- Average Price per Square Foot: $443
- Average Monthly Traditional Rental Income: $2,670
- Average Traditional Cap Rate: 1.4%
- Average Monthly Airbnb Rental Income: $4,050
- Average Airbnb Cap Rate: 3.0%
Multi Family Homes for Sale in San Diego, CA: 1,223
- Median Property Price: $874,000
- Average Price per Square Foot: $361
- Average Monthly Traditional Rental Income: $2,800
- Average Traditional Cap Rate: 1.3%
- Average Monthly Airbnb Rental Income: N/A
- Average Airbnb Cap Rate: N/A
Foreclosure Homes for Sale in San Diego, CA: 55
- Median Property Price: $567,800
- Average Price per Square Foot: $404
- Average Monthly Traditional Rental Income: $2,390
- Average Traditional Cap Rate: 2.2%
- Average Monthly Airbnb Rental Income: $3,040
- Average Airbnb Cap Rate: 3.8%

Similar to other top locations for real estate investing in the US housing, the most numerous type of San Diego homes for sale are single family homes. This property type accounts for 84% of all San Diego real estate listings in 2019. About 7% of the San Diego houses for sale are townhouses, followed by condos (5%) and multi family homes (3%).

Why Investing in Single Family Homes in San Diego

San Diego single family homes for sale are the predominant type of listings. Real estate investors in favor of this rental property type should keep in mind that single family homes sell for about 4% more than other San Diego homes for sale. While they offer a good return on investment with both rental strategies, other property types are more profitable. With 688 single family homes for sale in the San Diego real estate market, investors are able to find positive cash flow properties within their budget which meet their criteria and expected return on investment.

Why Investing in Condos in San Diego

Condos for sale in San Diego, California are a good option for those real estate investors looking for cheap houses for sale in San Diego as their listing price is 29% below the median level. This property type offers the highest rate of return as a traditional rental property and the 2nd highest as an Airbnb San Diego rental. Currently property investors can choose among 39 condos for sale in the San Diego housing market. Before buying a condo rental property, you should check out the HOA’s rules and regulations to make sure that rental properties of either type are allowed and not restricted.

Why Investing in Townhouses in San Diego

San Diego townhouses for sale are another profitable investment property type. They are listed for 89% of the median property price in the local market. Townhouses generate the 2nd highest capitalization rate when rented out on long term basis and the highest cap rate as vacation rentals in San Diego. If using a Property Finder tool, investors can locate a money-making property for sale among the 58 townhouses for sale in San Diego.

Why Investing in Multi Family Homes in San Diego

San Diego multi family homes for sale can turn into a profitable real estate investment strategy even for beginners. Their median listing price exceeds the average San Diego real estate prices with 7% only. This is not much considering the fact that multi family homes allow investors to buy multiple rental units within the same building. This makes rental property management more efficient for San Diego real estate investors who decide to be DYI landlords or Airbnb hosts. Hiring a professional property manager also makes more financial sense with multi family homes, turning this type of investments into a passive income source. Moreover, financing the purchase of a California multi family property is easier as lenders see them as less risky due to the lower chance of zero rental income as opposed to other property types. Investing in the San Diego real estate market can currently choose among 23 multi family homes for sale.

Why Investing in Foreclosed Homes in San Diego

San Diego foreclosures for sale promise a high rate of return real estate investment opportunity. You can find these cheap houses for sale in San Diego, CA for 70% of the median listing price in the local housing market. Meanwhile, after some quick fixes and repairs, they can generate the same rental income as other investment properties. The low purchase price pushes the return on investment in terms of both cap rate and cash on cash return immediately. In addition, forced appreciation is an easy option with foreclosed homes as their home value goes up after some basic repair works. With the right tools to conduct detailed investment property analysis, real estate investors can find profitable opportunities among the 55 foreclosures for sale in the San Diego real estate market.

Important Stats for San Diego Real Estate Investors

Safety in the San Diego Real Estate Market

Crime Rate Index: 27 (100 is highest)

San Diego is safer than 27% of US cities, with a high overall crime rate of 23 crimes per 1,000 residents.

Access in the San Diego Real Estate Market

Walk Score: 51
Transit Score: 37
Bike Score: 39

San Diego is the 19th most walkable large city in the US. It is somewhat walkable, has some public transportation, and does not have many bike lanes. Accomplishing some errands on foot is possible.

Affordability in the San Diego Real Estate Market

Cost of Living Index (Excluding Rent): 73
Rent Index: 61
Cost of Living Plus Rent Index: 67

The average cost of living in San Diego excluding rent is 27% below the average cost of living in NYC. rent in the San Diego real estate market is 29% cheaper than in New York City. the average cost of living in San Diego, California index including rent is 23% below the NYC equivalent.

San Diego Real Estate Taxes

California State Average Effective Property Tax Rate: 0.77% (below the national average of 1.08%)
San Diego County Average Effective Property Tax Rate: 0.76% (below the national average of 1.08%)
San Diego City Average Effective Property Tax Rate: 1.231% (above the national average of 1.08%)

California real estate tax collection is regulated by Proposition 13 of 1978. Importantly, this law limits general California real estate taxes (excluding those collected for special purposes) to 1% of a property’s market value. Furthermore, California property taxes are paid on the assessed value of the home. When you buy a real estate property, the assessed value is equal to the purchase price, and it increases according to the inflation rate each year, with a 2% cap on annual increases. The San Diego real estate tax rate exceeds the national average. Real estate investors considering buying a rental property in the San Diego housing market should keep in mind that since property values are rather high, San Diego real estate taxes can add up to a significant amount. Including this number in the investment property analysis is crucial in order to ensure a positive cash flow property with high return on investment.

If, alternatively, you would like to check out profitable options for real estate investments in states with no property tax to reduce recurring expenses and increase the rate of return, have a look at Texas, Hawaii, Alabama, Louisiana, West Virginia, and Wyoming.

San Diego Real Estate Market: Traditional Rentals

Average Monthly Traditional Rental Income: $2,790
Average Traditional Cap Rate: 1.4%
Price to Rent Ratio: 24
Renters’ Percent of Population: 56%
Optimal Property Type: Condo or townhouse
Optimal Number of Bedrooms: 0 (studio) and 3
Traditional Rental Listings: 4,412
3 Best Neighborhoods in San Diego for Investing in Traditional Rental Properties: Ridgeview-Webster, Emerald Hills, and Encanto
3 Worst Neighborhoods in San Diego for Traditional Rental Properties: Lincoln Park, Colina del Sol, and Rancho Bernardo

Traditional rental property investments in the San Diego housing market are one of the best ways to make money from real estate in 2019 and beyond. The large population, the strong population growth, the diverse economy, and the expanding employment opportunities drive rental demand.

More than half (56%) of the residents in the San Diego real estate market decide to rent a property rather than buy a home. The high prices of San Diego homes for sale is one of the main factors behind this trend. As a result, San Diego has a high price to rent ratio of 24, which supports the fact that most residents are better off renting rather than buying. From an investor’s point of view, this means high rental demand, low vacancy, high occupancy, and excellent rental income. The traditional rental income in San Diego is one of the highest nationwide.

The ultimate result is a good profitability of long term rental properties in San Diego, in terms of both cap rate and cash on cash return. San Diego real estate market analysis estimates the average cap rate for traditional rentals at 1.4%. This does not seem like a lot as it is much below the good cap rate of 8-12%. Nevertheless, this is just a city-average rate, and the top San Diego neighborhoods for rental property investments provide a much higher rate of return. Furthermore, using the best real estate investment tools such as a Property Finder and an investment property calculator, real estate investors can find profitable houses for sale in San Diego and analyze their expected return on investment in a matter of minutes.

Long term return return on investment is another factor attracting investors in the San Diego housing market. The real estate appreciation rate has exceeded both the state and the national level in recent years, and it is expected to continue providing a good return in the coming years.

According to this San Diego real estate market report, the most profitable property type for traditional rentals is a condo or a townhouse. San Diego homes for sale with 0 bedrooms (studios) and 3 bedrooms provide the highest rate of return on a rental property. An AI, predictive analytics tool such as the Property Finder will prove of indispensable help in identifying top-performing real estate properties with these exact specifications in the San Diego real estate market.

Landlord-Tenant Law and Regulations in the San Diego York Real Estate Market

The relations between landlords and tenants in the San Diego housing market are regulated by the California Landlord-Tenant Law. this is similar to San Francisco, Los Angeles, San Jose, Sacramento, and Oakland. It is important for real estate investors to understand what responsibilities and rights they have before they buy a rental property to stay on the legal side.

Most cities lean in favor of either landlords or tenants, and unfortunately for investors California is a rather tenant-friendly state. However, as long as tenants follow the rules and comply with regulations, they can make a lot of money in real estate.

Security deposits are not a must in the California housing market, but landlords can collect a security deposit equivalent to no more than two monthly rents unless they rent out a furnished apartment. For furnished apartments the limit is set at 3 months of rent. The security deposit has to be returned to the renter within 21 days of moving out of the San Diego rental property with an itemized list of all required repairs.

Rental agreements are required for all tenancies of 12 months or more. Nevertheless, San Diego real estate investors are strongly advised to have a written lease agreement no matter the length of the rental period as this makes it easier to prove the exact terms and conditions.

The California real estate law stipulates that landlords are obliged to repair substantial defects in their rental property to comply with state and local building and health codes. Moreover, they have to perform regular maintenance work to keep the building in a livable and safe condition. Nonetheless, landlords are not obliged to fix damages caused by tenants or their family, guests, and pets.

Landlords in the California real estate market can conduct regular checks on their investment properties rented out on long term basis. However, they are legally required to provide a 24 hour notice to the tenant. Moreover, unless it is a case of emergency, the real estate investor can enter the property only during regular business hours.

Whereas currently the State of California does not have rent control, many cities such as Los Angeles, San Francisco, Palm Springs, Campbell, Los Gatos, and others have rent control in order to protect the rights of tenants. Actually rent control is coming to San Diego County in 2020, capping the annual increase in rent to 7-8%. However, this limit should not worry real estate investors in traditional rental properties in the San Diego real estate market. San Diego real estate prices are expected to grow at a lower rate in the coming few years, which means that traditional rental income in San Diego can keep up – and even exceed – property values, keeping the good rate of return on a rental property.

In the California housing market tenants can charge late fees, but they should a reasonable estimate of the cost which the late payment is causing to the investor and cannot be used as a punishment.

While no tenant likes to deal with an eviction, it is good to know that this is a viable possibility for investors in California who have to deal with late payments. The first step is a Three-Day Notice which includes the rent due as well as some other details concerning the payment method. If the tenant fails to make a payment within the three-day period, the landlord can move forward with the eviction process.

These are the most important regulations which real estate investors in California in general and San Diego in specific should have in mind before buying a rental property. As you can see, the Law is not so strict as to prevent profitable real estate investments in the San Diego real estate market. However, before you proceed with buying an investment property in the city, make sure to check out any specific requirements in San Diego County and the City of San Diego as there are some variations between state and local landlord-tenant legislations.

In case you think that investing in rental properties in one of the landlord friendly states makes more sense for you, you can do an investment property search in Texas, Indiana, Colorado, Georgia, Kentucky, and Alabama.

Best San Diego Neighborhoods for Investing in Traditional Rentals

San Diego Real Estate Market Report 2019 Best Neighborhoods for Traditional Rentals

1. Ridgeview-Webster

Median Property Price: $261,200
Average Price per Square Foot: $233
Average Monthly Traditional Rental Income: $2,600
Average Traditional Cap Rate: 8.9%
Walk Score: 35

This San Diego real estate market report ranks the Ridgeview-Webster neighborhood as #1 among the top neighborhoods in San Diego for buying investment properties to rent out traditionally. If you’re interested in investing in single family homes for sale in San Diego, that’s one of the best places. One of the most important characteristics of Ridgeview-Webster real estate properties is the low listing prices. Homes here sell for less than a third of the average San Diego real estate prices. The affordability of this neighborhood makes it perfect for beginner real estate investors and others with a limited budget. The average cap rate for a traditional rental property in Ridgeview-Webster is much above the average levels in the majority of the US housing market.

2. Emerald Hills

Median Property Price: $347,600
Average Price per Square Foot: $289
Average Monthly Traditional Rental Income: $2,670
Average Traditional Cap Rate: 4.4%
Walk Score: 21

Analysis of the San Diego housing market reveals that the Emerald Hills neighborhood is the 2nd among the best neighborhoods in San Diego for investing in a traditional rental. The neighborhood was named after the Emerald Hills Country and Golf Club located there. This means that Emerald Hill residents enjoy access to golf facilities. The location is ideal for those looking to invest in San Diego single family homes for sale, which are the predominant type of properties in this area. Homes for sale here are listed for only 43% of the median price in the San Diego real estate market. The traditional rental income is comparable to the rest of San Diego, which makes buying a long term rental property in Emerald Hills a high return on investment strategy in 2019 and 2020.

3. Encanto

Median Property Price: $631,200
Average Price per Square Foot: $266
Average Monthly Traditional Rental Income: $2,070
Average Traditional Cap Rate: 4.3%
Walk Score: 44

According to San Diego real estate data, the Encanto neighborhood is the 3rd best San Diego neighborhood for buying rental properties. The median listing price of San Diego homes for sale in Encanto is 22% below the city-level average, which makes this area relatively affordable even for a new real estate investor. The neighborhood has a very family friendly atmosphere as well as diverse economy and population which explains why so many people want to live here. The public schools are above average, which makes it easy for landlords to attract renters with children. Investing in a traditional rental in Encanto offers a high cap rate and cash on cash return.

4. Nestor

Median Property Price: $346,300
Average Price per Square Foot: $243
Average Monthly Traditional Rental Income: $2,190
Average Traditional Cap Rate: 3.9%
Walk Score: 27

San Diego real estate market analysis positions Nestor as #4 among the top locations for real estate investing in the city. The location benefits from a very low vacancy rate and is ranked as one of the most liveable neighborhoods in San Diego. This explains why the Nestor neighborhood is ideal for buying a long term rental property. The low property prices (equivalent to 43% of the average San Diego real estate prices) and the comparable rental income result in a high profitability for traditional investment properties in Nestor.

5. Bird Land

Median Property Price: $506,400
Average Price per Square Foot: $404
Average Monthly Traditional Rental Income: $2,770
Average Traditional Cap Rate: 2.8%
Walk Score: 43

Bird Land is yet another top location for buying a rental property in the San Diego real estate market. Houses for sale in San Diego here get listed for 62% of the prevailing home value in the city. Long term rental properties in the Bird Land neighborhood yield a high return on investment in terms of cap rate and cash on cash return. Investing in a traditional rental property in Bird Land is one of the most profitable real estate investing strategies in the US housing market 2019 and 2020.

6. Mt. Hope

Median Property Price: $479,500
Average Price per Square Foot: $289
Average Monthly Traditional Rental Income: $2,780
Average Traditional Cap Rate: 2.7%
Walk Score: 45

According to our San Diego real estate market report, the last area on the list of the top neighborhoods in San Diego for real estate investments is Mt. Hope. that’s one of the best locations to invest in cheap houses for sale in San Diego as the median listing price is only 59% of the city level. Meanwhile, San Diego rental properties in the Mt. Hope neighborhood generate a very good rate of return. Rental demand here is high as more than half of the population rents rather than owns a home. Buying an investment property in Mt. Hope is a smart real estate investment decision in 2019 and beyond.

San Diego Real Estate Market: Airbnb Rentals

Average Monthly Airbnb Rental Income: $3,930
Average Airbnb Cap Rate: 2.6%
Average Airbnb Occupancy Rate: 59.4%
Optimal Property Type: Townhouse or condo
Optimal Number of Bedrooms: 0 (studio) and 3
Airbnb Rental Listings: 6,346
3 Best Neighborhoods in San Diego for for Airbnb Rental Properties: Encanto, Nestor, and Grant Hill
3 Worst Neighborhoods in San Diego for Airbnb Rental Properties: Bay Ho, Swan Canyon, and Skyline
Airbnb San Diego Legal Status: Short term San Diego vacation rentals are only legal in primary residences and only for up to 6 months per year. Operating an Airbnb San Diego property requires obtaining a short term rental license and a Transient Occupancy Registration Certificate. Moreover, San Diego Airbnb hosts are obliged to pay a few different taxes and fees.
Annual Events in San Diego with the Highest Airbnb Occupancy Rate:
- Farmer’s Insurance Open Golf Tournament: January

This annual PGA Tour event is one of the most important and popular golf tournaments in all of the US.

- Gaslamp Mardi Gras: February

San Diego is home to the biggest carnival celebrations of Fat Tuesday in Southern California. Parades, music, and dancing takes over the historic Gaslamp Quarter.

- Rock ‘n’ Roll San Diego Marathon: June

What distinguishes the San Diego annual marathon and half-marathon event from other marathons in the US is that there is a different rock band on each mile.

- San Diego County Fair: early June-early July

This annual fair is the largest one in California and features various local foods, garden shows, livestock tents, exhibits, rides, games, and other sources of entertainment throughout the historical Del Mar Fairgrounds in the oceanfront village of Del Mar.

- The Old Globe Theatre’s Summer Shakespeare Festival: June-September

This summer event is one of the signature annual traditions in the San Diego cultural scene where three dynamic productions of Shakespeare are played in the outdoor Lowell Davies Festival Theatre of the Tony Award-winning Old Globe Theatre in Balboa Park.

- Big Bay Boom Fourth of July Show: 4th of July

The most spectacular celebration of 4th of July in San Diego County is in Coronado where a two-hour parade – the largest on the West Coast – takes place. Moreover, there are art in the park events, a concert in Spreckels Park, and rough water swimming. Fireworks are discharged simultaneously from multiple locations around San Diego’s Big Bay including Shelter Island, Harbor Island, Embarcadero North, Seaport Village, Embarcadero South Marina Park, Coronado Ferry Landing, and Imperial Beach.

- Comic-Con: July

Comic-Con is by far the most important and visited annual event in San Diego which has been taking place for 50 years. It attracts 135,000 attendees from 80 countries in the San Diego Convention Center.

- Del Mar Racing Season: July-September

The horse racing events take place at the Del Mar Racetrack in the seaside city of Del Mar.

- San Diego Smooth Jazz Festival: Thanksgiving weekend

The San Diego Thanksgiving Dixieland Jazz Festival is called the “crown jewel of jazz festivals”. The event features different jazz styles and world famous performers in Mission Valley.

The San Diego short term rentals business has been one of the fastest growing and most prosperous not only in the California real estate market but also across the entire US housing market. Local and out of state real estate investors have been buying investment properties in San Diego with the sole purpose of renting them out on Airbnb and other similar platforms. The concerns among the local population and the local authorities resulted in new restrictive San Diego Airbnb laws which were passed in October 2018 and came into effect in the summer of 2019.

In brief, buying investment properties or second homes to turn into San Diego vacation rentals is not a possibility any more in the San Diego real estate market. This is because only primary residences can be rented out on Airbnb, HomeAway, and other vacation rental platforms.

However, making money in real estate with short term rental properties is still possible in the San Diego housing market. Local investors in need of a home can purchase a real estate property to live in and rent out a room or two for half the year. The concept of house hacking in real estate investing can be applied to short term rentals, not only traditional ones. Actually, renting out the extra space in their home will make buying a home financially more feasible in the San Diego real estate market where skyrocketing prices have been a challenge for homebuyers.

San Diego real estate market analysis shows a high return on investment for San Diego short term rentals. The city-average Airbnb cap rate of 2.6% might not seem like a lot to experienced real estate investors. It is significantly below the conventionally accepted good cap rate of 8-12%. However, beginner real estate investors should remember that this is just a city-average rate while the best neighborhoods in San Diego for real estate investing offer a considerably higher rate of return on short term rental properties. Furthermore, national real estate market analysis reveals that this return on investment exceeds what the vast majority of the most profitable Airbnb locations for investing in income properties offer.

This above-average profitability is the combined effect of high nightly rates and a high Airbnb occupancy rate. The fact that San Diego welcomes over 36 million tourists annually drives the excellent return on investment and turns Airbnb San Diego into a money-making real estate investment strategy, even if only for primary residences.

The data analysis conducted for this San Diego real estate market report shows that the most profitable property type for Airbnb rentals are San Diego condo vacation rentals followed by townhouses. An Airbnb host can make the most money with a short term rental property with 0 bedrooms (a studio) or 3 bedrooms.

San Diego Airbnb Laws and Regulations

The short term rental business grew quickly in the San Diego real estate market after the establishment of Airbnb in 2008 and other similar home sharing platforms. In 2018 only San Diego Airbnb hosts welcomed more than 1 million Airbnb guests and made over $231 million in Airbnb income. However, this rapid expansion of San Diego vacation rentals caused disturbance among local residents and authorities. As a result, on 22 October 2018 the San Diego City Council voted in favor of strict Airbnb San Diego rules, which came into effect at the beginning of July 2019.

According to the new legislation, only primary residences can operate as San Diego short term rentals. This means that second homes and other investment properties cannot be turned into San Diego vacation rentals. Buying an investment property for the sole purpose of renting it out on Airbnb, HomeAway, or another vacation rental platform is not an option in the San Diego housing market. Moreover, even primary residences can be rented out on short term basis for only up to 6 months per year. However, if San Diego Airbnb hosts have a second housing unit on their primary residence property, such as in the case of a duplex, they are allowed to apply for a second short term rental license.

Furthermore, to operate an Airbnb San Diego rental legally, you have to obtain a short term rental license which costs $949 and needs to be renewed annually. This is one of the highest rates nationwide. In addition, hosts are required to get a Transient Occupancy Registration Certificate and a Transient Occupancy Tax (TOT) of 10.5% to the City of San Diego. Moreover, Airbnb San Diego hosts have to pay a fee of $3.96 for whole home rentals and of $2.73 for room rentals with the proceeds going towards affordable housing in San Diego.

The taxes and fees are to be collected by the short term rental platforms upon payment by the guests. Airbnb, HomeAway, Vrbo, and other such platforms also need to notify hosts of the requirements with regards to permits and fees, to assure that all San Diego hosts are legally registered, and to keep records of all San Diego short term rentals transactions for a period of 3 years.

Airbnb San Diego has been one of the numerous US major cities which imposed strict and even prohibitive regulations on vacation rentals. Other top locations for real estate investing where only primary residences can be rented out on short term basis include Airbnb Los Angeles, Airbnb Chicago,Airbnb San Francisco, Airbnb Las Vegas, and Airbnb Santa Monica.

Best San Diego Neighborhoods for Investing in Airbnb Rentals

San Diego Real Estate Market Report 2019 Best Neighborhoods for Airbnb Rentals

1. Encanto

Median Property Price: $631,200
Average Price per Square Foot: $266
Average Monthly Airbnb Rental Income: $3,320
Average Airbnb Cap Rate: 10.1%
Average Airbnb Occupancy Rate: 59.6%
Walk Score: 44

The list of the best Airbnb San Diego neighborhoods is headed by the Encanto neighborhood. The average cap rate for Airbnb San Diego, CA rental properties here is double digit, which is rare in most US housing markets. The high profitability results from relatively affordable property prices, outstanding Airbnb rental income, and good Airbnb occupancy rate. Something of particular importance about Encanto is the fact that it is also among the top neighborhoods of San Diego real estate for investing in traditional rental properties. This gives real estate investors the flexibility to switch between rental properties if they realize that being a San Diego Airbnb host is not the right choice for them. Buying an income property in Encanto will be an optimal real estate investment strategy in 2020.

2. Nestor

Median Property Price: $346,300
Average Price per Square Foot: $243
Average Monthly Airbnb Rental Income: $3,640
Average Airbnb Cap Rate: 8.8%
Average Airbnb Occupancy Rate: 58.0%
Walk Score: 27

The Nestor neighborhood is not only a top location for buying an Airbnb property but also on top of the list of safest neighborhoods in San Diego. San Diego real estate market analysis shows that it is also among the most profitable locations for investing in long term rentals, which makes it a great place for real estate investing in general. Furthermore, Nestor is one of the most affordable neighborhoods in San Diego. All these factors mean that investing in real estate in Nestor is a smart move at the moment.

3. Grant Hill

Median Property Price: $423,600
Average Price per Square Foot: $386
Average Monthly Airbnb Rental Income: $5,250
Average Airbnb Cap Rate: 8.0%
Average Airbnb Occupancy Rate: 61.6%
Walk Score: 77

Our San Diego real estate market 2019 report shows that the Grant Hill neighborhood is the 3rd best area for profitable Airbnb San Diego rental properties. Houses for sale in San Diego get listed for about half the prevailing rate, while the Airbnb income is extraordinary. The result is an excellent return on investment for San Diego Airbnb rentals. Investing in real estate in Grant Hill promises to make money for real estate investors in the coming months.

4. Stockton

Median Property Price: $436,900
Average Price per Square Foot: $562
Average Monthly Airbnb Rental Income: $4,310
Average Airbnb Cap Rate: 6.9%
Average Airbnb Occupancy Rate: 64.1%
Walk Score: 69

Stockton ranks as #4 among the best neighborhoods for San Diego short term rentals in 2019. It is one of the most walkable San Diego neighborhoods which is a plus for Airbnb guests out of state who come without their car. The Airbnb occupancy rate in the Stockton neighborhood is one of the highest in the San Diego housing market. If using the best real estate investment tools for 2020, investors can buy a top-performing Airbnb property in Stockton at an affordable price.

5. Oak Park

Median Property Price: $515,000
Average Price per Square Foot: $524
Average Monthly Airbnb Rental Income: $5,470
Average Airbnb Cap Rate: 6.5%
Average Airbnb Occupancy Rate: 70.1%
Walk Score: 7

San Diego real estate market analysis positions Oak Park as #5 in the list of the best neighborhoods in San Diego for listing a property on Airbnb, HomeAway, Vrbo, or another vacation rental platform. This area has the highest Airbnb occupancy rate in the San Diego housing market, which makes it one of the up and coming neighborhoods in San Diego for short term rentals. Investing in an Airbnb property in the Oak Park neighborhood is a profitable opportunity as long as the Airbnb San Diego host uses it as a primary residence.

6. Bay Terraces

Median Property Price: $477,300
Average Price per Square Foot: $298
Average Monthly Airbnb Rental Income: $4,470
Average Airbnb Cap Rate: 6.0%
Average Airbnb Occupancy Rate: 60.6%
Walk Score: 18

The last best neighborhood for investing in Airbnb San Diego in 2019 and beyond, according to San Diego real estate market analysis, is Bay Terraces. San Diego vacation rentals here enjoy a good rate of return, resulting from high Airbnb rental income and strong Airbnb occupancy rate. The Bay Terraces neighborhood offers affordable property prices, which makes it a good option for beginner real estate investors considering housing hacking. Buying an investment property in Bay Terraces to live in and partially rent on Airbnb is a top real estate investing move at the moment.

Investing in San Diego Real Estate Properties: Optimal Rental Strategy

In such a hot real estate market as the San Diego one, investing in any rental property can be profitable and can bring a high return on investment. The success of traditional San Diego rental properties is driven by the high proportion of renters, the high price to rent ratio (resulting in demand), and the excellent rental rates. As long as you conduct careful real estate market analysis and diligent investment property analysis, you can find a profitable long term rental property among the hundreds of San Diego homes for sale.

Similarly, Airbnb San Diego is one of the most successful short term rental businesses nationally and globally. The beautiful climate, the extensive beaches, and the numerous attractions bring tourists year-round. This pushes up the nightly rates as well as the Airbnb occupancy rate which ultimately leads to excellent rate of return.

As shown previously in this San Diego real estate market report 2019, San Diego vacation rentals are more profitable than traditional San Diego rental properties. However, this does not mean that Airbnb San Diego is the optimal rental strategy. The City of San Diego has imposed strict Airbnb San Diego rules which prohibit investing in Airbnb rentals. Only primary residences can be operated as San Diego short term rentals, which means that house hacking is a viable option in this housing market.

All in all, traditional rental properties emerge as the real estate investing strategy suitable for full-time and out of state investors who want to buy an investment property to purely rent out. Investors are in luck as this rental strategy brings high profitability, compared to other best places to invest in real estate, as the US real estate market analysis shows.

Why You Should Invest in Real Estate in San Diego in 2019: The Pros

Real estate investors buy rental properties in order to make money, and this is no different in the San Diego housing market. There are numerous positive factors which attract investors to San Diego rather than other top locations for investing in real estate.

The most important indicator that you should considering buying a San Diego investment property is the strong demand for both rental strategies. The large population combined with the high proportion of renting vs. homeownership guarantee that traditional rentals will face strong demand in the San Diego real estate market. Similarly, Airbnb San Diego properties are a popular choice for the 36 million people who come to the city each and every year.

Furthermore, both rental strategies are accompanied by high return on investment in terms of cap rate and cash on cash return. The rate of return on a rental property in San Diego exceeds the rate in many of the other top locations for buying investment properties. With the help of a Property Finder and a rental property calculator, you can find both traditional and Airbnb investment properties which will make thousands of dollars in rental income every month.

If you are a beginner real estate investor with little or no experience in closing real estate deals, it is good news that the San Diego real estate market is currently a neutral one. Neither property sellers nor property buyers are favored, which allows investors in rental properties to find an excellent investment opportunity after some neighborhood analysis, property search, and rental property analysis. In such a large market as the San Diego one, it is natural that market conditions vary from one area to another. While some San Diego neighborhoods are seller’s markets, others are buyer’s markets, so they could be a good starting point for your investment property search. Buying a rental property below market value is one of the best ways to push up your return right away.

In conclusion, things are looking good for real estate investments in San Diego not only in 2019 but also in 2020 and beyond. As natural appreciation is expected to continue happening in the San Diego real estate market, investors should hurry up and purchase properties now before prices have gone further up.

Why You May Not Want to Invest in Real Estate in San Diego in 2019: The Cons

Naturally, investing in real estate in any location comes with some challenges. As highlighted before in this San Diego real estate market report, the main drawback of investing in San Diego homes for sale is their high price. The skyrocketing home values – similar to other cities in the California housing market such as Los Angeles and San Francisco – make San Diego real estate investing challenging for new real estate investors and others on a tight budget. However, with the right financing method, buying a rental property in San Diego is a feasible option. Moreover, investors should use a Property Finder tool to locate profitable investment properties within their budget. In addition, house hacking is an option for both rental strategies. This will allow investors to solve two problems with the purchase of a single real estate property: buy a home and buy an investment property.

Another significant disadvantages of investing in the San Diego housing market is the restrictive Airbnb San Diego laws. According to recently passed legislations, only primary residences can be operated as San Diego short term rentals. This means that you cannot buy an investment property to just rent out in this way. House hacking is one possible solution to have an Airbnb San Diego rental property in 2019 and beyond.

San Diego Real Estate Forecast

Things are looking good for the San Diego real estate market 2020 in line with the general expected California real estate trends. One of the leading San Diego real estate trends is the moderate appreciation, below 2%. However, it will be enough to overcome inflation and to provide good long term return on investment on income properties.

Meanwhile, traditional rental income is also forecast to continue increasing. The recently passed rent control in the San Diego housing market is not expected to have a major negative impact on the profitability of investment properties as annual rent rises rarely exceed 7-8% in San Diego.

Another major San Diego real estate trend is that rental demand for both long term San Diego rental properties and San Diego vacation rentals will remain strong. However, investors should keep in mind that Airbnb San Diego real estate investing is not a feasible option, unless with house hacking.

Additional Resources for San Diego Real Estate Investors

Best San Diego Investment Properties

This San Diego real estate market report shows that investing in traditional San Diego rental properties and Airbnb San Diego rentals can be a profitable option. What real estate investors in order to secure positive cash flow properties with a high rate of return is an investment property calculator to search through the 821 San Diego homes for sale and filter the ones which meet their criteria including budget, neighborhood, property type, optimal rental strategy, traditional and Airbnb rental income, cap rate, and cash on cash return in a matter of minutes. A heatmap tool will provide experienced and beginner real estate investors with a color-coded map of San Diego neighborhoods which highlights the best San Diego neighborhoods for buying rental properties in addition to the worst neighborhoods in San Diego for real estate investing. The San Diego neighborhoods map provided by the heatmap real estate investment tool can be color-coded based on the median property price, average traditional and Airbnb rental income, traditional and Airbnb cap rate, and Airbnb occupancy rate. Another real estate investing tool, the Property Finder, helps even new real estate investors find the most profitable income properties for their preferred rental strategy and other criteria.

Best San Diego Real Estate Agents

Hiring a top-performing San Diego real estate agent is a must for new property investors, out of state ones, and those looking for passive real estate investing strategies. San Diego, California real estate agents will help investors not only find profitable rental properties but also close deals quickly at the best possible price. Here are some of the top real estate agents in San Diego:

San Diego Real Estate Auctions

One of the best ways for investors to afford buying a rental property despite the high San Diego real estate prices is to go for foreclosed homes for sale. In the San Diego housing market, foreclosures sell for significantly less than other listings. To find out the times of a San Diego real estate auction in the neighborhood of your choice, check out this California real estate auctions calendar.

Property Management of San Diego Traditional Rental Properties

Buying a long term rental property in the San Diego real estate market is not equivalent to becoming a landlord, which is a job dreaded by many. Part-time real estate investors, out of state ones, those looking for passive income, and those not willing to be landlords can hire a professional property manager to manage all aspects of their investment property.

Property Management of San Diego Short Term Rentals

Similarly, you don’t have to become an Airbnb host and deal with guests signing in and out of your rental property. San Diego vacation rentals can be professionally managed by specialized property managers for passive income investments.