Real estate is booming across the United States in 2022. Smart investors are taking advantage of the opportunities available and handing the profits over to their fists. One of the most lucrative markets in the US (as you might guess if you’re a fan of HGTV) in California.
However, to your surprise, California’s top real estate market doesn’t include Los Angeles or San Francisco. Instead, the focus was on other popular markets across the state.
Buildium recently reported on 60 emerging real estate markets to watch in 2022, and there are quite a few California cities on the list. If you are investing in California real estate, you should focus on Bakersfield, Sacramento, Roseville, Riverside, San Bernardino, Ontario, San Diego, Carlsbad, and Fresno.
Let’s take a look at some of the investment challenges and opportunities unique to California, the local regulations you need to know about, and how to find a partner who can help you succeed in the marketplace.
what to consider
There are some important considerations you should always keep in mind when investing in California rental properties, both general and area-specific.
California Weather Challenge
California has some unique weather challenges and natural disasters that you should prepare for. Extended droughts are common, so consider the water bill and the H2O needed to keep your lawn cool. Also, wildfires can spread quickly in some parts of the state, so make sure you have safety measures in place to keep renters aware of any impending danger. Buying insurance will help you get financial compensation if your property is damaged.
In California, landlords can also require renters to purchase insurance against potential weather-related damage.
Competitive market (read: expensive)
Investing in real estate in California is not for the faint of heart. Once you own a property or two, it’s an expensive market to enter and compete fiercely. Make sure you have enough cash and energy to complete your plan. Also, once you’ve invested in a property and are ready to rent it out, setting affordable rental prices for tenants means your profit margins are likely to be lower than in lower-priced markets.
Choose the right tenant
Keeping your property occupied is a landlord’s top priority, especially in a high turnover market like California. In order for these units to be occupied, it is important to do everything possible to attract quality long-term tenants.
Due to the highly competitive California market, landlords often have an advantage when choosing tenants. Your property is a hot commodity. Be sure to choose to make your life easier, not a more stressful tenant.
Get the details you need. Be sure to ask the right questions when interviewing tenants, such as:
- Have you ever been evicted?
- Why are you moving? Have a pet?
- What is your monthly income?
are you a student?
Featured list. Write a list that stands out to potential tenants. At a minimum, your listing should include information such as rent, number of bedrooms, number of bathrooms, deposit amount (if applicable), pet policy, and location. Make sure to also include your contact information. Easy to locate so tenants can reach you quickly.
3 Tips When Choosing a Property Management Company in California
administrative property. If you are a landlord with multiple properties (especially multifamily rental units), it may be worth considering hiring a property manager to help you. In fact, the Buildium report found that 70.8% of rental property owners prefer a California property manager to handle rental and marketing responsibilities. Having a third party take over these responsibilities can give you more time to build your real estate portfolio.
If you are considering this step, make sure to hire the right California property management company for you.
#1: Research
Take the time to research all of your options before entering into any formal agreement. Find local companies online, ask friends and investor connections they’ve worked with, and interview your top picks. Depending on your location in California, your options can vary widely in terms of the size and specialization of property management companies available. However, the following two tips can help you make the right decision no matter where you are:
#2: Find Adaptability
Property management companies work for you, which means they should accommodate your needs, not ask you to change plans for them. The needs of each investor are different.
ask yourself:
- Am I trying to stay on top?
- Where do I need more help?
- How can a property management company help make my life easier?
- A good PM company will be able to adapt to you instead of offering you a one-size-fits-all approach.
#3: Hiring Experience
Hiring a property management company means you are hiring additional talent to maximize your investment. You want to hire managers with experience in areas you are unfamiliar with and the state of California, which can be a particular advantage. This way you can use your experience to manage your property and share tips that can help you grow your portfolio over the years.
Understanding the Law: California Real Estate Law
Of course, each state has different laws regarding the sale, purchase, and lease of real estate. Within states, laws may vary by city and county. While you can and should do your own research and may consider consulting your property management company for advice, it is important to meet an expert in real estate law so that you can discuss any contract, sale, or another aspect of your business.
In California, there are several important laws to be aware of.
Parliament Act 2343
Knowing AB 2343 is important if you want to invest in residential real estate such as apartments. Passed in 2019, the law introduced new requirements for tenants to give three days’ notice to pay rent or face eviction.
Previously, tenants had three days to pay rent or start packing. AB 2343 changes this slightly by excluding court holidays (including Saturday and Sunday).
While the law is designed to help tenants avoid wrongful evictions, investors need to know AB 2343 to properly schedule their eviction notices.
predatory lending laws
California’s predatory lending laws (Finance Code Sections 4970-4979.6) apply to certain loans secured by residential liens.
According to Active Rain, “If there is a ‘consumer loan’ in which the original principal balance of the loan does not exceed $250,000 ($250,000), adjusted upwards every five years, the predatory lending laws apply…”. You can understand better the law here.
Act of Parliament 107
Assembly Bill (AB) 107 is the most recent addition to the regional real estate law, which comes into effect in January 2022. The bill requires the Department of Real Estate to collect information on “military, veteran, and spousal leave applications, including expedited leave applications, the number of expedited leave permits issued and denied each calendar year, and the period between application and expedited permit issuance. Average time.”
As you can see, some California real estate laws can be unexpected and specific. It’s worth taking the time to consult an expert early so you don’t face unexpected legal bills.
The California real estate market has been on an upward trend for more than a decade and shows no signs of slowing down. Participating as an investor or lessor can be a lucrative way to earn a living and grow your portfolio, but only if you research the market properly, work with the right team, and make informed decisions that will help you grow in the long term.
Since real estate laws in any state can be complex (especially in California), it is wise to work with a local property management company that is familiar with the market and the ins and outs of operating in these areas. Building this connection will help your business grow faster, keep your unit busy, and ultimately lead to a higher return on your investment. What’s not to like?
