There’s no state like California when it comes to real estate. Cities like San Francisco and San Jose boast median home prices in excess of $1 million — and that’s the median price, not the average price (which would can be pulled up by a few very expensive homes). Indeed, the number of homes you could buy elsewhere for the price of a California home is staggering.
With its great climate and major centers of industry — tech in the San Francisco Bay Area, entertainment in Los Angeles — California is always going to be a hugely in-demand market for housing. But with such high home prices, many people, if not most, have to resort to renting. This is a prime reason why California is such an excellent state for buying and owning rental property.
Here’s a look at the best places in California to own rental property and turn a solid profit in 2019.
Oakland is one of the best places to buy rental property in the Bay Area. You get the proximity to San Francisco without facing that city’s dizzyingly high prices: According to Zillow’s latest data, the median price in San Francisco for all homes — that means from one-bedrooms, to single-family homes, to multi-family and condos, and everything in between —is $1,253,461.
In Oakland, the median price is almost half that. Add on to this Oakland’s impressive employment numbers in recent years. Unemployment has dropped significantly since 2013, while both the percentage and number of people in the civilian labor force has increased. This is a good development because many other parts of the country ostensibly have lower unemployment rates, but there are actually fewer people in the labor pool working or even looking for work anymore, distorting the measure of employment in those cities.
- Percentage of renter households: 60.2%
- Number of renter households: 96,048
- Median property price: $653,250
- Median rent: $3,127
- Price-to-rent ratio: 19.45
- Annual rental income: $37,524
- Gross rental yield: 5.74
Located northeast of San Francisco area, Sacramento is the state capital and one of the best places to buy rental property in California in 2019.
Property in Sacramento is fairly affordable, the current median home listing price being $312,650. This is good for keeping your buy-in down. Plus, since Sacramento’s price-to-ratio is higher-than-average (U.S. overall: 12.22), renting still makes more sense than buying for many. Another key factor in Sacramento’s favor is that the majority of households are renters.
- Percentage of renter households: 52.7%
- Number of renter households: 95,780
- Median property price: $312,650
- Median rent: $1,693
- Price-to-rent ratio: 15.94
- Annual rental income: $20,316
- Gross rental yield: 6.50
East Los Angeles
Located just east of downtown Los Angeles, East Los Angeles is emerging as one of the top cities to own investment property in California in 2019. East Los Angeles is in an advantageous geographic position, straddling Interstate 710, a key north-south artery in the Los Angeles metro area.
The main industry here is manufacturing, which accounts for over 15% of employment, according to Data USA. Though manufacturing tends to have lower wages on average, East Los Angeles has seen incomes rise substantially. Over the last five years, the median household income in East Los Angeles grew by 15.8%, from $36,755 in 2012, to $42,544 by 2017, according to the Census Bureau. This bodes well for rental property owners since potential tenants how more money to spend, while at the same time, largely not enough to buy a home in the city.
- Percentage of renter households: 67%
- Number of renter households: 21,384
- Median property price: $469,500
- Median rent: $2,334
- Price-to-rent ratio: 16.43
- Annual rental income: $28,008
- Gross rental yield: 5.97
Located in southwestern Los Angeles County, Hawthorne is the hometown of the Beach Boys and one of the best cities in California to own rental property.
First and foremost, Hawthorne has one of the highest rates of renter-occupied households in California, with 73.5% being renters. Secondly, the city’s price-to-rent ratio of 18.86 is higher than the U.S. average, with home prices too far out of residents’ range to make buying a home instead of renting one make financial sense. Though the median property price is costlier than some of places, Hawthorne compensates with a median rent that’s over $2,800 a month and rising. Plus, $650,000 for property in the cockpit of the Los Angeles metro area isn’t that bad of a deal for prospective investment property owners.
- Percentage of renter households: 73.5%
- Number of renter households: 21,661
- Median property price: $648,944
- Median rent: $2,851
- Price-to-rent ratio: 18.86
- Annual rental income: $34,212
- Gross rental yield: 5.27
East of Sacramento, Arden-Arcade is showing promising signs as a potential market for rental property owners. Investment property owners will like its price-to-rent ratio that’s above the national average. Another boon: The majority of households in Arden-Arcade are renter-occupied.
- Percentage of renter households: 57.1%
- Number of renter households: 23,471
- Median property price: $359,000
- Median rent: $1,779
- Price-to-rent ratio: 17.14
- Annual rental income: $21,348
- Gross rental yield: 5.95