Despite the high home prices (or, rather, because of the high home values), California is the best state for real estate investing. But it’s a big state! Northern California, Central California, and Southern California each have distinctive personalities and strengths to offer real estate investors.
In this article, we’re going to focus on real estate investment opportunities in Southern California. Specifically, we’re going to count down the top five best places to invest in real estate in Southern California.
But before we get to our list, let’s take a quick look at the reasons why Southern California is so attractive to real estate investors.
Why You Should Invest in Southern California
Before explaining why you should invest in Southern California, we should explain that the SoCal boundaries are a little blurry. Many Californians think of Southern California as being seven counties:
1. San Diego
5. Los Angeles
6. San Bernardino
But many other Californians expand the definition to include:
8. Santa Barbara
10. San Luis Obispo
And because the definition of Southern California varies, it is difficult to find data on the Southern California region. Instead, we need to look at data by county or for the entire state.
With that in mind, here are five compelling reasons to buy real estate in Southern California.
1. High Demand
People want to live in California. You may have heard sensationalized stories about the “California exodus” following the outbreak of COVID-19 in 2020. But a 2021 study by a consortium of universities found this to be a myth.
The fact is, the Golden State’s population dipped by only .3% in the past year, with the Bay Area accounting for much of the decline. Most of Southern California, particularly the Inland Empire (made up of Riverside and San Bernardino Counties), is still thriving.
2. Low Supply
Southern California has been experiencing an ongoing housing shortage since the Great Recession. Below-average new construction, single-family zoning laws, and seniors aging in place have all contributed to the comparatively low inventory of homes available for purchase and for rent.
3. Changing Legislation
While the housing shortage has been benefiting real estate investors by driving up rent prices and property values, we all recognize that affordable housing should be more accessible. And local SoCal legislators agree.
Los Angeles County, for example, recently enacted an Accessory Dwelling Unit Ordinance to allow owners of single-family lots to build additional units on their property. Not only does this help ease the housing shortage in Southern California, but it also provides a unique value-add opportunity for property owners.
4. High Percentage of Renters
Renters make up 54% of the Los Angeles County population. This is high compared to the national average. Nationwide, 36% of households rent rather than own. And this makes income-generating investment properties particularly appealing in Southern California.
5. High Growth Potential
With the high demand and low supply, property values and rents have both been on the rise for over a decade. PropTech giant, Zillow, estimates that the average California home was worth $308,000 in July of 2012. By July 2022, that estimate was up to $799,000! Similarly, rentalrates.org estimates that the average two-bedroom rental in California commanded $1,059 in 2012. By 2022, that figure was up to $2,274.
But SoCal is still a large region, covering over 56,500 square miles. So which cities should you invest in?
We analyzed market data from sources like World Population Review, Redfin.com, and Zumper.com to determine the five best places to invest in real estate in Southern California.
5. Big Bear Lake
Big Bear Lake is a popular vacation destination in San Bernardino County, just east of Los Angeles. SoCal residents flock to Big Bear Mountain in the winter for skiing and snowboarding. And they return in the summer for boating and fishing.
With a permanent population of just over 5,000 people, there might not be an excessive demand for year-round traditional rentals. But there is an extremely high demand for vacation rentals. By California standards, the median home price of $663,000 is affordable. And, with home values and rental rates both increasing by around 18% from 2021 to 2022, Big Bear offers solid growth potential in terms of cash flows and appreciation.
Big Bear could be a good option for buying a second home as an investment property. You could enjoy the home when you need a break from the city, and you could rent it out when you’re not using it.
Big Bear Lake Real Estate Fast Facts:
Median home price: $663,000
Year-over-year home price growth: 18.4%
Median rent for a two-bedroom: $2,000
Year-over-year rent change for a two-bedroom: 18.0%
4. Palm Springs
In the 1930s, Palm Springs became a popular escape for movie stars and musicians based in Hollywood. And it remains so today. Celebrities and non-celebrities, alike, look to Palm Springs as a place to relax, unwind, and soak up the high desert sun. And the ultra-popular Coachella music festival brings worldwide attention to this small-but-thriving community every year.
With the lowest median home price of any city on our list, Palm Springs is more affordable than many housing markets in California, despite the high desirability of the classic mid-century modern homes. And with comparatively high rent prices, Palm Springs rental properties offer exceptional return on investment.
Palm Springs Real Estate Fast Facts:
Median home price: $575,000
Year-over-year home price growth: 8.5%
Median rent for a two-bedroom: $2,588
Year-over-year rent change for a two-bedroom: 14.0%
Located in Orange County, just south of Los Angeles, Anaheim is best known as being the home of Disneyland, the happiest place on earth. But there’s more to Anaheim than Disneyland. Attractions like Angel Stadium and the Freemont Canyon Nature Preserve draw crowds from all over Southern California.
For real estate investors, Anaheim offers solid home appreciation over time and exceptional rental income potential. In fact, from 2021 to 2022, rental rates for two-bedroom units jumped by an impressive 23.8%, earning Anaheim a spot on our list of the five best places to invest in real estate in Southern California.
Anaheim Real Estate Fast Facts:
Median home price: $852,500
Year-over-year home price growth: 10.7%
Median rent for a two-bedroom: $2,600
Year-over-year rent change for a two-bedroom: 23.8%
2. San Diego
In 2021, San Diego was ranked as the most fun place to live in the US. Between the beach communities, Balboa Park, the Gaslamp District, and local sports teams, there’s always something fun to do in San Diego. And with some of the best year-round weather in the world, locals get lots of sunny, temperate days to enjoy all of these activities.
With these strong demand drivers, it’s no wonder home values are up 13% and rental rates are up over 16% since this time last year! While this level of growth is not sustainable over the long term, it’s a good indicator that the area is highly desirable and that residents will continue to look for housing in San Diego.
San Diego Real Estate Fast Facts:
Median home price: $910,000
Year-over-year home price growth: 13%
Median rent for a two-bedroom: $3,080
Year-over-year rent change for a two-bedroom: 16.2%
1. Los Angeles
The Los Angeles real estate market forecast shows why Los Angeles tops our list of the best places to invest in real estate in Southern California. Property value growth has been exceptional in Los Angeles, going from a median home value of $413,000 in August of 2012 to a cool $1 million a decade later.
And, from 2021 to 2022, rents increased by an impressive 16.1%. With the median two-bedroom rental rate at $3,250, the high property values are justified for investors.
True, LA home prices are high by investment property standards. This leaves some real estate investors wondering if they can afford to enter this high-value, high-reward market. Once you know how to invest with low initial investment amounts, you can take advantage of the many benefits of investing in LA! And we’re going to share that secret with you right after some Los Angeles real estate fast facts.
Los Angeles Real Estate Fast Facts:
Median home price: $1,030,000
Year-over-year home price growth: 8.4%
Median rent for a two-bedroom: $3,250
Year-over-year rent change for a two-bedroom: 16.1%
So What is the Best Way to Invest in Los Angeles Real Estate?
The secret to investing in high-value markets like LA is real estate syndication. Similar to real estate crowdfunding, syndication is when multiple investors join their capital to purchase property that would be out of reach to individual investors. For a low minimum investment, you can buy into a specific real estate project, which is professionally managed by the syndicate sponsor.
When you choose the right syndication firm to manage your investment, you minimize your risk, maximize your return potential, and unlock rewarding markets like Los Angeles.
Invest in Southern California Real Estate with Gatsby Investment
The best real estate investment strategy for high-value markets is real estate syndication. And Gatsby Investment is among the most trustworthy syndication firms in the country.
Based in Beverly Hills, Gatsby Investment specialized in Southern California real estate. Our team of real estate analysts continuously searches the region to find the properties with the greatest return potential. And with a wide range of investment opportunities, including single-family flips, multi-family rentals, and luxury estates, we have options for both short-term and long-term investors.
Plus, you don’t need to be a Californian to take advantage of our strong real estate market. Investing in property out of state is easy with Gatsby Investment. You can invest in California from wherever you live. All you need is an Internet connection!