Did you know that investing in real estate is the primary wealth builder in the country? It’s a fantastic way to diversify your portfolio, increase cash flow, and hit your financial goals. This is especially true in the country’s most populous state, California, which boasts some of the best weather and most beautiful vistas in the world. As a result, median home prices in several locations throughout the state easily exceed $1 million, making it a phenomenal real estate opportunity.
With this staggering median figure in mind, there are some things you should know about before you invest in property in the Golden State.
Rental Demand Will Always Be There
As the exorbitantly high median home prices indicate, purchasing a home in California is quite the undertaking. Most people simply can’t afford to purchase and choose to rent instead. The weather, industrial hubs, and glamorous nature of “Cali living” pretty much guarantees that there will always be a demand for rental that surpasses the supply. So, purchasing property for the express reason of renting is a fantastic investment.
Chart Your Investment Goals
So, you know you want to purchase property in California. Now that that’s out of the way, it’s crucial that you set clear and measurable investment goals in order to make savvy investment decisions. Ask yourself:
- When do you wish to retire?
- When you do reach retirement, how much money will you need?
- Will you have income sources in retirement?
- How’s your credit?
- Do you still need to pay for kid’s college or weddings? Do you have travel plans? Do you need to support your parents?
- How much money can you invest in real estate?
- Is the property a down the road investment or intended to be a cash flow generator?
By fleshing out these answers, you’re more prepared to make an informed decision.
Know the California Market
Do you know the type of property you want to invest in? Options include:
- Single family home
- New homes for resale
- Fixer-uppers for flipping
- Multifamily homes
- Apartments or commercial properties
With that in mind, there are certain locations in California that are best to invest in. If you’re looking for a deal, locations where median prices have dipped include:
- Santa Barbara County – -20.5% dip to $560,000
- Santa Clara County – -10.6% dip to $1,300,000
- Sonoma County – -7.5% dip to $640,000
How Will You Pay for It?
Have you considered your financing options? Do you know how you will cover a down payment? Are your funds liquid? Have you looked for hard money lenders?
It’s important that you have a financing strategy in place before you ever sign the dotted line. If you don’t have the money on hand but are eager to jump in anyways, there are plenty of rental and investment property loans that you could take advantage of. Seeking outside investment is a great option, so long as you chart out financial strategies for how your investment will allow you to pay that money off.
A Bubble May Be on the Horizon
Do you worry about a housing bubble? If current figures are any indication, the California housing market may be entering that territory. Currently, a solid percentage of California’s top housing markets have prices that are at least 25% higher than income price. Much of this is due to the fact that demand far exceeds supply and those in local and state governments have enacted policies that further choke the supply by preventing or impeding construction.
While it is impossible to predict when a calamity could occur, it’s crucial that you manage your risk. If risk mitigation is your goal, take the following steps:
- Avoid the upper end properties, since they’ll likely experience a drop
- If you wish to invest, invest for the long-term so you can ride out a dip
- If you plan on flipping, you should expedite that process
Investing in California
Any real estate investment carries an inherent risk. It can be an exciting and somewhat daunting proposition. If your goal is to invest in the California market, then think big picture and long-term plans as opposed to short-term gains. While an impending bubble may be coming soon, if historic trends are any indicator, housing prices will recover and then exceed past current figures.