Multifamily

San Diego Provides Opportunity for Investing in Multifamily Properties

San Diego’s Multifamily Market is Growing

Known for its almost perfect climate, miles of beaches, and family attractions, San Diego, California is a popular destination that appeals to a wide range of people. For real estate investors, the same features that make San Diego popular also create opportunities to build a healthy revenue stream.

San Diego is one of the fastest-growing cities in the U.S. Its moderate climate, numerous parks, beaches, and wide array of attractions appeal to singles, families, and retirees alike. The city also has a large military presence, playing host to Marine, Naval, and U.S. Coast Guard bases – including Naval Base San Diego, the largest base on the West Coast.

Ranked as one of the most expensive cities in the country, San Diego’s real estate market is pricey. In 2021, the typical home value in San Diego is $829,062 – an increase of 23% from 2020. San Diego’s price-to-rent ratio is 26, which indicates it is more affordable to rent than buy in this market. San Diego’s higher home values create a great opportunity for real estate investors. For many people who want to live in this southern California city, renting is the only affordable option. That makes the area a prime market for investors who are looking for real estate investing opportunities in San Diego.

San Diego’s best investment opportunities are in the multifamily and single-family rental real estate markets, with the city’s multifamily market overperforming compared to other coastal cities. The strength of these multifamily and SFR real estate investment types makes San Diego, California a market to consider for any experienced real estate investor.

The State of San Diego’s Rental Market

The San Diego real estate market weathered the COVID-19 pandemic successfully and continues to see tight availability in both single-family and multifamily housing. Rents and occupancy are up significantly; as of July 2021, occupancy increased to 97.3%. Median home prices in San Diego have risen substantially over the past year, largely in part because of the low inventory and high buyer demand. Rent prices, however, have risen steadily in San Diego over the past year despite the general economic turbulence that's plagued the nation.

Experts believe that San Diego’s market will continue to rebound, but they are keeping an eye on three specific trends moving forward, and investors should too when considering real estate investing in San Diego.

1.    Unemployment Is High

San Diego’s unemployment rate has fallen steadily since the start of 2021, but it remains higher than the national average. In January 2021, San Diego’s unemployment rate was 8%, but it dropped to 6.1% in May before increasing to 6.7% in June. That puts San Diego above the national unemployment rate of 6%, but well below the overall  California unemployment rate of 7.7%.

While many of San Diego’s most popular industries – leisure and hospitality, manufacturing, and education – added thousands of jobs, hotels, and restaurants are still struggling to find employees to fill open positions.

Unemployment is a key statistic for real estate investors to watch because it speaks to the quality of potential tenants for rental properties or multifamily investments. When aiming to grow their investment portfolios, investors should watch these trends to ensure their rent rolls will be strong on residential real estate investments in San Diego, CA.

2.    Housing Inventory Remains Tight

Like much of the nation, San Diego's housing market is extremely tight right now. Driven by persistent shortages of homes for sale — coupled with low mortgage rates luring more buyers into the market — the median home price in the region rose to a record $829,062 in June.

That’s up $104,062 from the previous record of $725,000, which was set in May - a 14.35% increase in just one month. A year ago, the median was $600,500. As the supply of homes for sale remains well below historic levels, it’s forcing buyers to offer thousands more than the asking price.

With just under a month’s supply of SFR real estate available, investors are likely to pay more than the asking price while also dealing with bidding wars. The upside – San Diego’s rental market is in such high demand that investors will likely see that balance out as renters seek housing.

3.    San Diego's Rental Market Is Booming

The San Diego real estate market has been ranked among the ten most expensive real estate markets in the country, though it ranks below several other West Coast cities. This high-priced real estate market creates massive demand for San Diego rental properties because many simply cannot afford to buy homes in the area.

After a major downturn in rent prices during COVID-19, San Diego’s rental market showed growth at the start of 2021. The average monthly rent for a one-bedroom apartment in San Diego increased 11% year over year, from $1,792 in August 2020 to $1,995 in August 2021.

The amount of rent investors receive on single-family San Diego rental properties could actually be more. Real estate investors who secure the right type of California investment property loans and purchase or build a desirable rental property in the right location, can charge well over $3,000 per month in rent. If these investors can convert San Diego rental properties into smaller units or multifamily properties, they could make roughly $2,200 each month on a one or two-bedroom apartment.

The cash-on-cash returns for properties in the San Diego housing market are around 2.5% for traditional rental properties. The fact that this California city has a diverse economy and isn’t wholly dependent on tourism means investors have a large net of potential renters including but not limited to newcomers, long-time locals, and students.

What Does San Diego's Market Mean for Investors?

• • Typically, the San Diego multifamily transaction market is just under $2 billion annually; in 2020, it was $1.2 billion.
    Now, as the economy begins to more widely reopen and vaccines continue to roll out, transactional activity is forecast to accelerate. Deals are already moving forward.
  • For the first four months of 2021, multifamily investing activity stood at $201 million, roughly doubling the sales recorded during the same time last year.
    There is an extreme amount of capital looking to be placed in San Diego, showing that investing in multifamily properties has a solid ROI.
  • As of April 2021, 8,960 new units were under construction while another 39,000 units were in the planning and permitting stages.
    Appetite remains very strong among investors, who are competing for products across all multifamily asset classes – A, B and C (value add).
  • Multifamily investments also remain strong because San Diego has very little available buildable land, compared to other markets.
    In a January report, real estate research firm Zonda said that San Diego had the fewest available lots in the nation according to its quarterly index that assigns values to the number of vacant spaces available for single-family housing. The report data showed that the number of available lots had decreased 28% in a year, the second-biggest reduction in the nation.

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For investors looking to purchase multifamily properties in San Diego, Lima One’s multifamily loans give investors the freedom to add newly built homes and apartment buildings to their portfolios. While inventory might be harder to find, investors with strong real estate investment strategies can still profit.

It’s now more important than ever to have a 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 or rehab projects smoothly

We are experts in financing fix and flip projects for investors looking to purchase and rehab an investment property, rental properties and portfolios, multifamily real estate investment opportunities, and new home construction for builders on urban in-fill, spec homes, model homes, and teardown/rebuild projects. Our team of experienced professionals will help guide you through purchasing or refinancing multifamily properties in need of value-add rehab or currently turnkey ready.

If you’re interested in obtaining California investment property loans, call us to learn more. Get started today and scale your rental property portfolio with Lima One, the nation’s premier lender for real estate investors.

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