Wait, isn\u2019t everyone meant to be leaving California? So why is the Golden State racking up new investors?<\/p>\n\n\n\n
What\u2019s more, these investors aren\u2019t Wall Street heavy hitters with bottomless pockets but mom-and-pop types\u2014albeit with more money than most\u2014looking for a safe haven to put their cash. Much of the buying recently has been centered in San Luis Obispo County, centrally located between Los Angeles and San Francisco, pushing the coastal enclave into the third-hottest investment area for single-family homes in the state, according to aggregator BatchData<\/a>, as reported by local newspaper the Tribune<\/a>.<\/p>\n\n\n\n The area\u2019s strike rate is impressive, with investors making a mighty 7,454 purchases last year. With median house prices in the area regularly hitting $1 million, there\u2019s been a lot of cash flying around the county.<\/p>\n\n\n\n What\u2019s different about the area\u2019s uptick in investors, the Tribune <\/em>reports, is that smaller investors have been the main drivers of home purchases, as just 14% of San Luis Obispo County residents can actually afford a median-priced home there. As homes sell for market value, Wall Street types have been steering clear.<\/p>\n\n\n\n San Luis Obispo Coastal Association of Realtors president Tim Townley told the Tribune <\/em>in an email:<\/p>\n\n\n\n \u201cIn our market, many homes sell close to their asking price. That type of environment is typically less attractive to large-scale investors who often focus on markets where they can buy at deeper discounts. Big investors like Blackstone have much more residential rental investment in areas like L.A. and the Bay Area\u2026We just don\u2019t have the inventory of distressed properties that the big guys feed on.\u201d<\/em><\/p>\n\n\n\n The SLO investor buying activity represents a demographic of landlords who aren\u2019t looking to stack doors and gauge out as much cash flow<\/a> from their rentals as possible, but rather deep-pocketed buyers looking for a safe place to park their cash and reap long-term rewards while benefiting from tax benefits<\/a> in the short term.<\/p>\n\n\n\n \u201cMost home purchases in SLO County are still being made by individuals,\u201d Townley said. \u201cThat includes people relocating to the area, Cal Poly-related buyers such as parents purchasing for students, and local residents who are moving within the county as their housing needs change.\u201d<\/p>\n\n\n\n Investment in the area has gone hand in hand with its cities creating a welcoming business environment while upgrading communal areas.<\/p>\n\n\n\n With a population of 30,000, the city of Atascadero is the county\u2019s main commercial hub. Mayor Charles Bourbeau said on the city website<\/a>:<\/p>\n\n\n\n \u201cAtascadero is transforming. The city is financially stable and well-managed, as underscored by recent bond ratings. Additionally, we have invested millions to enhance the downtown area with ample free parking and to improve roads and public facilities across the community. The city council is stable, consistently welcoming to investment, and committed to policies that make Atascadero an easy place to do business.\u201d<\/em><\/p>\n\n\n\n A massive 19% of California real estate is owned by investors, according to BatchData, which was analyzed by the Orange County Register<\/a>. In San Bernardino County, it is 27%, and in Riverside, 19%<\/a>. That number jumps to a staggering 83% in the mountain regions.<\/p>\n\n\n\n The aggregator found that 91% of the investment homes in California are owned by mom-and-pop investors with fewer than five homes<\/a>. The rampant investor activity in California is also the reason it\u2019s experiencing an affordability crisis for owner-occupants.<\/p>\n\n\n\n Investing in California real estate is a double-edged sword. Because of the high cost of housing and the large number of investors buying single-family homes, affordability is a major issue for the average earner in the state, exacerbated around its major cities. From an investor’s point of view, that means parking cash, not primarily for cash flow but for stability and appreciation<\/a> in a high-priced market.<\/p>\n\n\n\n California\u2019s supply shortage has been a flashpoint of debate between the NIMBYs and YIMBYs, with well-off towns and small cities resistant to any type of residential development other than single-family housing. That started to change with the passage of Senate Bill 9<\/a> in 2022, which allowed two to four units to be built across single-family lots in California without local approval.<\/p>\n\n\n\n Now, other California cities, such as San Francisco<\/a>, are also changing their zoning laws to allow low- and middle-income residents. However, one of the real problems for anyone thinking of investing in California is the cost of insurance<\/a>. It eats up cash flow like a wildfire eats up dry wood, which is why it\u2019s so expensive.<\/p>\n\n\n\n The good news for owners is that, following the exodus after last year’s wildfires, five major insurers<\/a> have committed to staying in the state.<\/p>\n\n\n\n On the positive side, one of the state\u2019s biggest calling cards is its enduring demand. It is an economic powerhouse, and despite the naysayers, it remains the fourth-largest economy in the world, with a GDP of $4.1 trillion, according to The Globalist<\/a>, which cited several sources in its reporting.<\/p>\n\n\n\n Los Angeles, San Diego, San Francisco, and Orange counties have relatively low investor ownership but represent some of the most in-demand rental markets in the country, thanks to education, healthcare, tech, entertainment, logistics, and tourism, which keep an unwavering demand. Should the recent drop in interest rates continue, it will be an even more popular place for long-term investors.<\/p>\n\n\n\n Investing in California is not for everyone. Homes in the state cost twice the national median<\/a>. It goes against the often-preferred investment strategies of low barriers to entry and high cash flow.<\/p>\n\n\n\n However, if you have cash on the sidelines or an abundance of equity<\/a>, can handle the insurance headache, and are tired of dealing with the grind of owning high-maintenance rentals, plonking down cash in California real estate is a proven long-term winner.<\/p>\n\n\n\nA Different Type of Californian Investor<\/h2>\n\n\n\n
Long-Term Dividends Rather Than Short-Term Cash Flow<\/h2>\n\n\n\n
Mom-and-Pop Buyers Own 91% of the Homes in California<\/h2>\n\n\n\n
Investing in California: A Double-Edged Sword<\/h2>\n\n\n\n
High prices and insurance hassles<\/h3>\n\n\n\n
Enduring Demand: The World\u2019s Fourth-Largest Economy<\/h2>\n\n\n\n
Final Thoughts<\/h3>\n\n\n\n