California is huge in terms of population, total land area and economy. It is easily one of the most geographically diverse states in the nation with mountainous areas, coastal cities and deserts. With a large and mobile population and a diverse economic and business base, real estate investors will find many reasons to consider adding California auction properties to their portfolio as part of a new growth strategy.
Overview of the California Economy
With a population of 39.5 million, which is about half of the United Kingdom, California ranks fifth largest economy in the world at $2.7 trillion. The Golden State is truly golden for those seeking opportunities in the fields of technology and entertainment. Silicon Valley and Hollywood have continued to thrive and contribute to the state’s growing gross domestic product, which increased by as much as $127 billion in 2017 compared to 2016 numbers.
Although the tech and entertainment sectors have become symbols of the state’s unique growth potential, the economic base is more diverse. With moderate weather year-round and massive acreage devoted to agricultural production, the state is still top in the U.S. for farm income. The aerospace industry accounts for a substantial chunk of the economy with the finance and health sectors contributing as well.1 With California being a major destination for domestic and international travelers, the state’s service industry remains robust regardless of the season. Large metropolitan areas, including San Francisco, San Diego, Los Angeles, and San Jose, may be the busiest economic and business hubs, but opportunities abound in other counties in California for real estate investors.
The Real Estate Market in California
Median home prices in California have followed an upward trajectory since 2012 following the turnaround from the housing crisis marked by a flood of foreclosures in some markets. Median prices are expected to rise by 3.1 percent to reach $593,450 according to a report from the California Association of Realtors. This is a modest increase compared to the 7 percent rise in the previous year that resulted in median home prices reaching $575,800. The real estate market is diverse, and median prices exceed $1 million in large metro areas such as L.A. County and San Francisco.
In most California cities, the California Association of Realtors reports the housing real estate market is characterized by high prices and tight inventory:2
- Housing affordability has been a pressing issue in the state of California for many years.
- Residents allocate more than 30 percent, the recommended level, of their monthly income to housing and property costs.
- Limited inventory of available housing is due, in part, to local activism against urban sprawl and unrestricted housing developments.
- Residents are resorting to renting instead of buying real estate in California.
- Californians are opting to move where real estate property is affordable.
- Higher wages add pressure on the local housing market.
- Interest rates are expected to remain stable with signs of moderate rate hikes in 2019 to 2020.
Best Place to Invest in Real Estate for a Buy and Hold Strategy
Buying real estate in California and holding real estate for an undetermined length of time can be a solid investment strategy whether you are a beginner or seasoned investor. This long-term investment strategy may include selling off after many years of ownership. In the interim, real estate property owners may rent out the home to generate income to cover new maintenance costs.
To determine if a property meets your investment goals, calculate the expected income that would accrue by putting up the property for long or short-term leases. Rent income should exceed the costs of maintenance, mortgage, insurance, taxes and other expenses. Any gains that may be realized from selling the property later should also be factored into the calculation.
Best Places in California for a Buy-and-Hold Investment Strategy
Los Angeles County
The median price for homes in L.A. is $610,000.3 This means that home buyers must be making at least $170,000 annually to qualify for a mortgage, assuming that they have $28,000 for the required down payment of 20 percent. In fact, L.A. County leads the way when it comes to housing expenses with the average wage earner unable to afford an average-priced home. According to Attom Data Solutions, at some point in 2018, Los Angelenos were using 75 percent of their income on housing costs alone.
This is news worth noting for real estate investors because with fewer people able to afford to buy their own home, the demand for rental units will be higher, and the rise in rental rates will be sustained long term. Factor in robust job growth in L.A. with an average of 5,000 jobs added every month, the abundance of entertainment and leisure amenities and pleasant weather year-round, L.A. County tops the list of best places in California to consider making investments in real estate property.
It is also worth noting that L.A. is one of the most popular vacation destinations. For California investment properties accessible to primary attractions such as Hollywood, Rodeo Drive, Venice Beach and other areas close to downtown L.A., managing your property as a vacation rental through Airbnb or similar services may be a solid strategy to generate income on a buy-and-hold investment property.
Orange County
Inventory of available houses for sale has improved in Orange County with the local realtor’s board reporting that the market has shifted from a seller’s market to one where buyers have more options. While the supply situation has eased with inventories higher by 13 percent year-over-year, it is not a buyers’ market, and the environment is ripe for investors to beef up their portfolios for some of the O.C.’s choice properties.
The unemployment rate in California is close to a historic low of 4.3 percent, and economic indicators for the O.C. reflect this, which spells good news on the property front.4 Home prices may still be out of reach for some local residents, but with stable jobs and greater confidence in the economy, renters may be eyeing upgrades to their housing situation. Consider adding California auction properties to your portfolio to rehab into premium rentals for long-term tenants. Properties in some of the O.C.’s desirable school districts hold great promise as long-term rentals and some of the best real estate in California.
San Bernardino County
The housing market in San Bernardino County has trended upwards in terms of price, demand and closed sales. Tight inventory has added pressure to a hot housing market, influencing prices and demand. Although the county has been proactive with addressing housing affordability issues, backing affordable housing programs, rents have increased by 5 percent annually, which limits the ability of average wage earners to save for a down payment.5 The Riverside-San Bernardino metro is considered Southern California’s least expensive rental housing area, but rent rates still exceed those in similar cities in the region.
All signs point to a stronger housing market in California in the coming years regardless of interest rate hikes, international tariffs, trade and other issues. The state’s economic base is diverse enough and its population resilient enough to weather these storms. Consider diversifying your investment portfolio with foreclosures that can be acquired at a potentially lower price and renovated to turn into income-generating properties. Auction.com, the largest online housing marketplace for distressed property, offers a user-friendly interface so that you can research California auction real estate properties seamlessly. Browse these properties now to find your next investment project.
The information in this blog post is being provided for informational purposes only and not for the purpose of providing legal or real estate investment advice, and no liability is assumed by Auction.com LLC with respect to such information.
Sources:
1 California’s Economy Is Now Bigger Than All Of the U.K.
http://fortune.com/2018/05/05/california-fifth-biggest-economy-passes-united-kingdom/
2 2019 Housing Market Forecast
https://www.car.org/aboutus/mediacenter/newsreleases/2018releases/2019housingforecast
3 The Median Home Price in Los Angeles County? $597k
Jenna Chandler – https://la.curbed.com/2019/4/29/18518264/los-angeles-county-home-prices-march-report
4 Home Prices Fall in Southern California For the First Time in 7 Years
Andrew Khouri – https://www.latimes.com/business/la-fi-southern-california-home-prices-20190426-story.html
5 Rental Affordability
http://indicators.sbcounty.gov/housing/rental-affordability/
