Forecasting Trends for Investing in Sacramento Real Estate

Sacramento, California has become one of the hottest housing markets in the country due to skyrocketing sales growth and price appreciation.

Because the California median home price is well over $800,000, buyers and investors are flocking to the capital city because of its comparably lower prices. Close to 70% of Sacramento homebuyers are from outside the area.

Median home prices in Sacramento County and West Sacramento have increased from $425,000 to $515,000 – a 21% increase YOY – but are still well below the median in nearby Silicon Valley. Inventory is sitting at a 1-month supply – a slight improvement from 2020 when it was at 0.8 months – and the average number of days on the market is still only 15 days.

With booming new construction and rental markets, Sacramento shows a lot of promise for those interested in California real estate investing. Investors should keep a couple of things in mind when it comes to investing in Sacramento real estate and California’s real estate market in general.

 

Why Sacramento is Attractive to Investors

 

Consistently ranked as one of the best places to work, play, and retire, the Sacramento housing market presents plenty of opportunity for real estate investors.

Capital city to the seventh largest economy in the world, Sacramento is a strategic choice for many businesses drawn to the city’s location, affordable cost of living, and quality of life.

Located in Northern California where the American River and Sacramento River cross, California’s capital city is a hybrid of agriculturally rich farmlands, a vibrant downtown area, and a centerpiece for some of the state’s most popular history museums.

Sacramento is home to California State University, Sacramento – one of 23 campuses in the California State University system. The city is also home to UC Davis Medical Center, a world-renowned research hospital.

As the state’s capital city, government jobs are Sacramento’s largest source of employment, but the city is more than a government town. While government jobs account for more than a third of the city’s employment, business and financial services is the second largest employment source in Sacramento. Technology, health care, and clean energy industries are also booming sectors. Advanced manufacturing jobs, communications, and equipment manufacturing account for about 5,000 jobs in the city.

The city’s tourism industry is also a huge revenue generator. Not far from popular tourist destinations such as San Francisco, Napa, and Sonoma, Sacramento generates more than $2 billion in tourism revenue, with 25 million visitors per year spending $1.3 billion on retail, food, and entertainment. Historic Old Sacramento brings in more than 2 million visitors annually, while Sacramento’s downtown area – a hub for conventions and other events – brings in more than $50 million.

 

Post-Pandemic Recovery

 

A healthy job sector and tourism industry has helped Sacramento’s unemployment rate inch closer to pre-pandemic levels. In March 2020, before quarantine began, Sacramento’s unemployment rate rested at 4.3%. It jumped as high as 14.4% during COVID shutdowns but by August 2021 had reached 6.4%.

As the unemployment rate drops, the tourism industry thrives, and the job sector is flourishing, more and more people are moving into Sacramento. While COVID-19 impacted where people choose to live, many major coastal cities saw population declines while cities like Sacramento, Detroit, and Dallas grew.

Though California lost 182,000 residents last year, the Sacramento community continued to grow. The region netted 12,750 new residents (a 0.5% increase), bringing the six-county population total to 2.56 million.

The area has been increasing in population between 1.5% and 2% annually in the past decade, and the city is expected to add another 229,000 residents between now and 2030.

 

New Construction Addresses Housing Shortage

 

The Sacramento region and the state of California both continue to feel the ramifications of an overall housing shortage and, for many, a severe challenge to find affordable housing.

To expand housing production in California, streamline housing permitting, and increase density to create more inclusive and vibrant neighborhoods across the state, California Gov. Gavin Newsom recently signed Senate Bill 9.

The legislation will allow as many as two duplexes, two houses with attached units, or a combination of the two on SFR property lots across California, without the need for local approval. Newsom said in a press release that SB 9 will lead to the creation of more than 84,000 new affordable homes.

SB 9 has the potential to be beneficial for real estate investors, builders, and developers interested in new construction projects in California – especially in Sacramento County. With SB 9 signed into law, it could result in 40,500 new units — about 6.8% of housing units countywide.

The new law could result in 9,500 new units in the city of Sacramento, according to some estimates. The new bill will apply only to properties zoned as single unit dwelling or rural estate, which includes most of the city’s residential areas, but not midtown and downtown.

 

What Does Sacramento’s Market Mean for Real Estate Investors?

 

Sacramento’s rental market is interesting in that multiple sectors are performing well, but with the advent of Senate Bill 9, new construction is the market to watch. This is great news for investors interested in expanding their investment portfolios through build to rent, new construction and single-family rental investments.

Ranked high on the list of best backbone markets, cities where homes are selling fastest, and cities with the most single-family rentals, Sacramento, California shows plenty of promise and opportunity for real estate investors. Add to that a booming new construction market, and Sacramento is among the hottest markets for real estate investors.

Despite low inventory and increasing home prices, Sacramento investors with strong real estate investment strategies can still profit. It’s now more important than ever to have an experienced lender capable of helping you:

  • Secure a loan with the best price and maximum leverage for your next rental investment
  • Close properties quickly and certainly
  • Run your construction and rehab projects smoothly

If you’re interested in construction loans in Sacramento, contact us to learn more. When it comes to ground-up construction loans in California, we’re the expert you’re looking for. Lima One’s new construction loan program is second-to-none because we’re able to offer services that other lenders in California can’t.

From the initial application all the way to loan payoff, you will work with our in-house team. Our experienced professionals will help guide you through each step of the lending process. You’ll find out how we’ve been able to help other investors and why we’re the industry’s premier lender for real estate investors.

Get started today and scale your rental property portfolio with Lima One, the nation’s premier lender for real estate investors.

Which Sacramento Real Estate Markets Are on the Rise?

Rental Market

The city’s rental market is just as hot, and there’s never been a better time to invest in the Sacramento real estate market. Sacramento’s rental market experienced a staggering YOY rent increase of 15%. Over the past three years, average monthly rent in Sacramento has increased from $1,446 in 2018 to $1,828.

Overall, Sacramento ranks 4th of 53 large metros in percentage of single-family renters; 42% of the city’s renters are single-family renters.

Multifamily Market

Sacramento’s multifamily occupancy rate has also consistently increased from 96.7% to 97.3% YOY. The city has projected that 4,411 new multifamily units will be completed by June 2022. Currently, the almond capital of the world ranks 34th out of 98 nationwide markets in multifamily development activity.

New Construction Market

The city’s new construction market is also seeing increased activity with several development projects underway in downtown Sacramento. Construction permits in the city have increased 15% YOY, and single-family construction permits have increased 55% YOY.

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