Real estate is booming across the United States in 2022. Smart investors are picking up on the opportunities available and turning profits hand over fist. One of the most lucrative markets in the U.S. (which you may be able to guess if you’re a fan of HGTV) is California.
What might surprise you, however, is that the top real estate markets for California don’t include Los Angeles or San Francisco. Instead, people are turning their attention to other hot markets across the state.
Buildium recently reported on the 60 up-and-coming real estate markets to watch in 2022, and quite a few California cities make the list. If you’re investing in California real estate, you’ll want to keep an eye on Bakersfield, Sacramento, Roseville, Riverside, San Bernadino, Ontario, San Diego, Carlsbad, and Fresno.
Let’s take a look at some investment challenges and opportunities specific to California, local regulations you should be aware of, and how to find partners that can help you succeed in the market.
When investing in California rental properties, there are a few important considerations—both general and region-specific—that you should always keep in mind.
California is host to some unique weather and natural disaster challenges that you’ll want to prepare for. Long droughts are common, so consider your water bills and H2O required to keep lawns looking fresh. Additionally, wildfires can spread rapidly across certain areas of the state, so you’ll want to make sure safety measures are in place to keep tenants aware of any imminent danger. Purchasing insurance will help you recover financially in the event that property is damaged.
In California, landlords can also require renters insurance to hedge against potentially costly weather-related damages.
Investing in California real estate is not for the faint of heart. It’s an expensive market to get into and cutthroat competitive once you have a property or two. Make sure you have both the cash and the stamina to see your plans through. Also, once you’ve invested in property and are ready to lease, setting accessible rental prices for tenants means that your profit margins may be smaller than in less expensive markets.
Keeping your property occupied is one of the highest priorities on a landlord’s list, especially in a high-turnover market like California. In order to keep those units filled, make sure you’re doing all you can to attract quality, long-term tenants.
Since California’s market is highly competitive, landlords often have an advantage when choosing tenants. Your property is a hot commodity. Make sure you’re choosing tenants that will make your life easier, not more stressful.
Get the details you need. Make sure you’re asking the right questions when interviewing tenants, questions like:
Stand-Out listing. Write a listing that stands out to potential tenants. At a minimum, your listing should include information like rental price, number of bedrooms, number of bathrooms, deposit amount (if applicable), pet policy, and location. Make sure you also include your contact information. Be easy to reach so tenants can get a hold of you quickly.
Property management. If you’re a landlord with multiple properties (especially multi-family rental units) it may be worth considering hiring a property manager to assist you. In fact, Buildium’s report found that 70.8% of rental property owners prefer to have a California property manager take care of leasing and marketing responsibilities. Having a third party take over these responsibilities allows you more time to build your real estate portfolio.
If you’re considering this step, make sure you’re hiring the right California property management company for you.
Before entering into any formal agreements, spend time researching all your options. Find local companies online, ask friends and investment connections who they’ve worked with, and then interview your top choices. Depending on your location within California, your options could vary greatly in terms of the size and specialization of the property management companies available. But, wherever you’re located, the next two tips can help you make the right choice:
A property management company works for you, which means they should adapt to your needs, not ask you to change plans for them. Every investor’s needs are different.
A good PM company will be able to accommodate YOU, not offer a cookie-cutter approach.
Hiring a property management company means you’re hiring additional brainpower to maximize your investments. You want to hire management with expertise in areas you’re unfamiliar with and in California, this can be a particular advantage. This way you can call on their experience to both manage your property and share advice that can help you grow your portfolio over the years.
Of course, every state has different laws surrounding the sale, purchase, and rental of real estate. And within the state, laws can vary greatly from city to city and county to county. While you can and should do your own research and may consider asking the advice of your property management company, it’s essential to get to know an expert in real estate law so they can double-check any contracts, sales, or other aspects of your business.
Within California, there are several stand-out laws to note.
If you are looking to invest in residential real estate like apartments, AB 2343 is important to know. Passed in 2019, this law sets new requirements for the three-day notice given to tenants to either pay rent or face eviction.
Before, tenants were given three days to either pay rent or start packing their bags. AB 2343 changes this a bit by excluding judicial holidays, which include Saturday and Sunday.
While this law is meant to help tenants from being unfairly evicted, investors should be aware of AB 2343 to properly time their eviction notices.
California’s predatory lending law (Financial Code Sections 4970-4979.6) applies to certain loans secured by a lien on a residence.
According to Active Rain, “the predatory lending law applies where there is a ‘consumer loan’ in which the original principal balance of the loan does not exceed two hundred fifty thousand dollars ($250,000), adjusted upwards every five years….” You can learn more about the law here.
Assembly Bill (AB) 107 is a recent addition to regional real estate law, having gone into effect in January of 2022. This bill requires that the Department of Real Estate collect information about the “military, veteran, and spouse license applications, including the number of expedited license applications, the number of expedited licenses issued and denied per calendar year, and the average length of time between application and expedited license issuance”.
As you can see, some California real estate laws can be unexpected and specific. It’s well worth your time to consult an expert early on so you don’t face unanticipated legal fees down the line.
California’s real estate market has been on an upswing for over a decade now and shows no sign of slowing down. Getting involved as an investor or landlord can be a lucrative way to make a living and grow your portfolio, but only if you’re properly researching the market, partnering with the right team, and making informed decisions that help you grow long-term.
Since navigating real estate law in any state can be tricky (and particularly so in California), you’d be wise to partner up with a local property management company that’s familiar with the market and the details of operating in those areas. Making this connection will help your business grow faster, keep units occupied, and ultimately bring higher returns on your investments. What’s not to like?