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By Cathy Fontana, Class A Management, Hurst, Texas
With the 12th largest economy in the world (that’s right…the world) and one of the best year-round climates, it should be of no surprise that California takes a spot on the top 10 list of hottest rental markets in the U.S. That’s according to REALTOR® magazine, the official magazine of the National Association of Realtors, which recently revealed the results, and listed California in the #5 spot.
Ranking is based on GDP and population change, and the great state of California logged an impressive GDP growth in 2012 of 3.5%. This is driven by an amazingly diverse economic base, including: agriculture, aerospace and aviation, natural resources, shipping, computer industries and technology, and the film industry. People continue to move to California for these and other reasons, resulting in a 0.95% 1-year population change.
Top Rental Markets in California
Irvine Rental Market
Bridge across North Lake, Woodbridge, Irvine, California (Wikimedia Commons)
The small town of Irvine makes the #6 spot on Money’s list of America’s best small cities. With a population of 213,600, Irvine is known best for its beaches, bike trails, many acres of parks and preserves, and village-like community layout.
Home prices in Irvine, however, are quite high. This, in combination with other factors, such as a volatile employment market, have led 37.7% of the Irvine population to rent. In July, 1-bedroom properties were averaging a rental rate of $1,600; a 2-bedroom was pulling $2,100; a 3-bedroom could get $2,700; and a 4-bedroom was getting about $3,300.
Modesto Rental Market
Modesto Arch, including the city motto (Wikimedia Commons)
According to the results of the 2012 HomeVestors-Local Market Monitor, Modesto is sitting pretty in the #2 spot of the Best 100 US Markets to Invest in Rental Property. Making the list for the first time, Modesto offers investors a +6.1% risk-return premium (+/-) relative to the 4.4% national average. It is 40.6% renter-occupied, with a median rental rate of $974. This is 19.2% less than the average in California, but 21.6% greater than the national average.
Bakersfield Rental Market
A panoramic view of Bakersfield, taken from Stockdale Tower (Wikimedia Commons)
Making the #6 spot on Money’s Top 10 List of Best Cities to Buy Rental Properties, Bakersfield offers a little something for everyone. The burst in the housing bubble deeply affected the real estate market in this area, which forced many homeowners into foreclosure. The result was a strong movement toward renting, and that has raised the rental rate by more than 20% over the 24 months ending in March 2013.
For investors seeking an opportunity in this area, the time is right. The average home price in 2012 was $115,000, which is a whopping 60% less than the peak prices of the mid-2000s. Moderate growth is expected, with a projected home price of $135,660 by 2015. The annual rent in Bakersfield is projected to be right at $10,628 by 2015.
Also Making the List…
The list above doesn’t really begin to scrape the surface of cities with promising outcomes for multifamily property owners. San Diego, Los Angeles, San Francisco, and many other cities have hidden gems just waiting to be uncovered. And that’s just the state of California. There are nine other states that also made the list of the top rental markets in the US. Texas, North Dakota, Washington, Minnesota, Oregon, Utah, Indiana, Tennessee, and West Virginia are also all viable options. Stay tuned to the series for more.
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