San Diego is home to many popular tourist places. With the beautiful weather and variety of activities, it becomes one of the best places to live in the United States.
Since San Diego has become a desirable city to live in, many people consider investing in real estate. But buying a property is not a walk in the garden, there are a few things to consider to make sure you are choosing the right property to invest in.
In this article, we’ll share some common questions investors have in mind before buying real estate in san diego and look at the pros and cons of investment.
Why Should You Invest in San Diego Real Estate?
San Diego is home to a million population, making it the second-largest city in California. With a growing population at a growth rate of 0.91%, San Diego has a stable and growing economy reinforcing industries like technology, hospitality, military, biotechnology, and microbrewery. Both population and economic growth lead to a high rental demand in the area.
Even though the median property price in San Diego is rather expensive, it becomes tough for real estate investors to enter this market. After making an investment in properties in San Diego, you can choose to put your property on rent for single and multifamily homes and make a decent income.
San Diego Real estate investors can expect a cash-on-cash return of 2.3% and a cap rate of 4.8% for traditional rental properties as well as a cash-on-cash return of 2.5% and a cap rate of 5.1% for vacation rental properties. It makes San Diego a profitable market for real estate investors.
Pros for Real Estate Investing in San Diego
- Ideal City for Long-Term Investing
San Diego will likely always be a desirable place for people to live. With the presence of popular places, the place provides an influx of people moving here. The value of properties might continue to go up and the likelihood of property values crashing in San Diego is less likely than in other places.
- Rising Prices & High Appreciation Rates
The value of homes in San Diego has been increasing significantly while they don’t add up to the cash flow. Home prices are still expected to keep rising. While this might not be ideal for the initial purchase of the home, it does mean that over the years, your home value will likely begin to skyrocket.
- Unemployment Rates Improving
Even after job losses due to Covid-19, unemployment still sits at under 10% for the county and is on the decline. With the reopening of more and more industries and declined covid cases, it is expected that the unemployment rate might go down.
- Second Largest City in California and Fast Growing
San Diego is the second largest city in California and it will keep on growing. With the perfect weather in Los Angeles, San Diego becomes a great spot to offer more real estate investing. The beaches and growing job opportunities are one of the reasons why San Diego remains in the top 10 fastest-growing cities in America.
- Significant Military Presence
There are multiple military bases in San Diego throughout the county. Approximately 95,000 people in San Diego are military employed and when including their families, this number rises to almost 200,000. This is fantastic for jobs and for the San Diego renter base. The military adds up to around 22% of the city’s economy.
- Increasing Rental Rate and Stable Renter Base
Year after year, the rental rates in San Diego have always been increasing. The demand for properties results from anywhere between a 3-5% increase each year. During the times pandemic, most property owners did not implement increases when it came to renewing their current tenants. Now that the economy is on the rebound, many landlords start increasing their rental rates again with about 46% of renters in the city.
- Affordable When Compared to Other California Cities
While San Diego is certainly not considered an inexpensive city, it is relatively cheaper than other major California cities. Areas like Palo Alto, Los Angeles, Malibu, and San Francisco are much more expensive and don’t have the perks of beaches, perfect weather, and drivability.
- Multi-Family New Construction Compared to Single Family
San Diego is increasing with condos and apartments. This becomes profitable for investors because these units are typically cheaper to purchase than a single-family home.
Areas like Downtown and UTC comprise a higher number of these properties and are continuing to expand. Even neighborhoods like North Park and mission valley have been rising in condos and apartments. Such areas are amongst the most popular areas for renters which means these units should rent quickly.
- High Quality of Life
San Diego has been considered one of the best places to live in the US because of the quality of life the city offers. It ranks 15 in a list of best places to live for quality of life. The city provides ideal weather, numerous hiking trails and beaches, a wide variety of cultures and cuisine, and a relaxed environment. There are plenty of job opportunities, but also plenty of ways to unwind after a work day. This is why even though home prices can skew high, the benefit outweighs the cost for renters and buyers alike.
Read Also: 9 Must-Know Tips for First-Time Landlords
Cons of Real Estate Investing in San Diego
- Limited Supply and High Competition from Other Investors
The biggest thing to consider when investing in San Diego right now is the limited supply of homes available. There is great demand for the available properties. This tight & limited supply often leads to bidding wars and paying over the asking price which is often less than the ideal price when it’s your first property investment.
- Increasing Prices
The low supply tends to increase prices to acquire a property. There are many buyers looking for homes and condos who are ready to pay the price it takes to buy the units. When it comes to investing in San Diego, the increasing prices make it more difficult to start. Investors often get confused as if they don’t make the investment right now, the properties will get more expensive within a year.
- Declining New Construction
While we see condos and apartments being built, we are seeing a decrease in overall new construction in the city. Stricter regulations have made it more challenging for people to get building permits which results in overall discouragement in the building. Another consideration is the lack of space for building single-family detached homes. The reason that more condos and apartments have been built is because of the space in the area for construction that people might want in building the areas.
- Tenant Friendly Laws
The tenant-friendly laws have increased in San Diego in the last few years. AB 3088 and SB 91 have allowed tenants to pay rent late and prohibit landlords from evicting tenants that cannot pay rent due to COVID-19-related hardship.
There are just cause eviction laws, habitable dwelling laws, and fair housing laws that protect tenants from unwarranted evictions and discrimination. While landlords have the rights, the law mostly favors tenants, especially if an issue is taken to court.
- Faster Multifamily New Construction Compared to Single Family
If you are looking to invest in a single-family home, it can be challenging to find the right home in San Diego. However, overall construction has decreased, especially for single-family homes.
Need Property Management Services in San Diego?
Sunset property management service in San Diego can help you find profitable real estate investing in San Diego County. We have expert property managers who can help you make the right real estate investment based on your needs.
Contact our experienced investors to find opportunities that exist based on your preferences.