Best Cali City to Invest in STR

Imperial, CA · Member since 2022 · 4 posts · 1 vote

I've been researching Big Bear cabins to invest in this year but do not see a cash on cash evaluation for more than 8%.
Is there another area in SoCal that is better to invest in or should I consider out of state? Any feedback is appreciated.

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Greg M.

Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes

I would be extremely cautious about adding any STR units in CA. STR are absolutely in the crosshairs of the politicians and there is growing opposition to them among the people. We've already seen cities outright ban them or create such burdensome regulations that they might as well be banned. They are being blamed for contributing to the housing shortage.

If you must invest in a STR in CA, I'd suggest staying far away from the large cities and find a smaller, Republican area. These will be the areas far less likely to impose STR restrictions and destroy your business overnight.

Keep in mind, even doing that, our beloved Governor Nuisance is a firm believer in allowing for local control... unless it goes against what he wants and then there needs to be a CA law forcing the local communities to follow his will. Therefore, we may find a CA law coming any day that heavily restricts STR in all of CA.

For me to have a STR in CA, it'd have to have awesome returns and be an easy switch to a LTR.

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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Hey @Maxzi Soto, you should just read the forums for a while and you will get the gist of things. I personally don't even look at CA for any kind of investment, but there are others who know a lot more and do well there.
Otherwise I would look out of state at established vacation areas. Things are going to be tough right now with interest rates often exceeding cap rate. 8% seems to be closer to the norm nowadays.
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Brennen Thompson
Investor · Tampa, FL · Member since 2020 · 52 posts · 42 votes
3y
Michael is right in that it's going to be tough to cashflow with rates as high as they are right now (at least, unless you're willing to put more of your own cash into the deal).
That said, investing in southern CA is not out of the question. We made our first investment in CA and it's been a major success. You just might have to get a little creative (for example, using a small multifamily as a vacation rental to generate more income).
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Many people think Cali has seen it's day as far as investing in STRs. Prices too high, current interest rates too high, regulations/restrictions/fees out the wazoo....
I left Cali a couple years ago so my knowledge would be a bit out of date but I'd say OOS is the way to go, unless you can find an untapped area somewhere.
But there are some investors on here that still swear by Cali so see what they say. Bear in mind though, that they are very seasoned, experienced and well-funded investors, so what worked for them will not work for you.
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Maxzi Soto
OP
Imperial, CA · Member since 2022 · 4 posts · 1 vote
3y
Quote from @Bruce Woodruff:

Many people think Cali has seen it's day as far as investing in STRs. Prices too high, current interest rates too high, regulations/restrictions/fees out the wazoo....
I left Cali a couple years ago so my knowledge would be a bit out of date but I'd say OOS is the way to go, unless you can find an untapped area somewhere.
But there are some investors on here that still swear by Cali so see what they say. Bear in mind though, that they are very seasoned, experienced and well-funded investors, so what worked for them will not work for you.

@Bruce Woodruff appreciate your reply, thanks for the insight!
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Maxzi Soto
OP
Imperial, CA · Member since 2022 · 4 posts · 1 vote
3y
Quote from @Michael Baum:

Hey @Maxzi Soto, you should just read the forums for a while and you will get the gist of things. I personally don't even look at CA for any kind of investment, but there are others who know a lot more and do well there.
Otherwise I would look out of state at established vacation areas. Things are going to be tough right now with interest rates often exceeding cap rate. 8% seems to be closer to the norm nowadays.

Thanks @Michael Baum I thought I was analyzing the cash to cash return incorrectly but seems to be an issue across the board! Thanks for the feedback.
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Maxzi Soto
OP
Imperial, CA · Member since 2022 · 4 posts · 1 vote
3y
Quote from @Brennen Thompson:

Michael is right in that it's going to be tough to cashflow with rates as high as they are right now (at least, unless you're willing to put more of your own cash into the deal).
That said, investing in southern CA is not out of the question. We made our first investment in CA and it's been a major success. You just might have to get a little creative (for example, using a small multifamily as a vacation rental to generate more income).

@Brennen Thompson thanks for your reply and I agree I will have to get creative with a different type of investment I was originally set on.
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Robert Reynolds
Real Estate Agent · Los Angeles, CA · Member since 2019 · 302 posts · 163 votes
3y
Quote from @Maxzi Soto:

I've been researching Big Bear cabins to invest in this year but do not see a cash on cash evaluation for more than 8%.
Is there another area in SoCal that is better to invest in or should I consider out of state? Any feedback is appreciated.

I would recommend Joshua Tree and Indio if trying to stay local. You can find a deal here and there in Big Bear but you would probably need to find a distressed home that needs a little rehab at that point. Would love to connect and help point you in the right direction. It's definitely possible to invest in SoCal and I would highly recommend, especially for your first couple STR's to get your systems in place.
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Jon Martin
Member since 2022 · 1k+ posts · 1k+ votes
3y
Central Coast resident here. I would avoid this state even if the numbers work. You are seeing a lot of County-wide regulations, which is especially worrying. I personally like properties in unincorporated areas that are in close proximity to hot spots because they tend to be safe from city rules, but County STR regs throw that strategy right out the window.
Another thing I don't like is that LTR laws strongly favor tenants, so an LTR back-up plan is a lot more risky.
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Jason Kudo
Real Estate Agent · Pasadena, CA · Member since 2017 · 276 posts · 255 votes
3y
Quote from @Maxzi Soto:

I've been researching Big Bear cabins to invest in this year but do not see a cash on cash evaluation for more than 8%.
Is there another area in SoCal that is better to invest in or should I consider out of state? Any feedback is appreciated.

Hi Maxzi, it's going to depend on your price point but for a friendlier barrier of entry in terms of acquisition price which should help with CoC, I'd look at the Lake Isabella area which is basically the Sequoia National Forest. During the spring and summer, the Kern River and Lake Isabella are busy with water recreation, fishing, and hiking and in the fall and winter it slows down but they do have winter recreation in the form of skiing at Shirley Meadows so it won't be dead in the winter.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Jon Martin:

Central Coast resident here. I would avoid this state even if the numbers work. You are seeing a lot of County-wide regulations, which is especially worrying. I personally like properties in unincorporated areas that are in close proximity to hot spots because they tend to be safe from city rules, but County STR regs throw that strategy right out the window.
Another thing I don't like is that LTR laws strongly favor tenants, so an LTR back-up plan is a lot more risky.
What he said ^^^^^^
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Gene HackerPro Member
Flipper/Rehabber · Lake Isabella, CA · Member since 2011 · 974 posts · 488 votes
3y
Make sure you look at very recent data, not 2021 when trying to determine performance. We have STRs in the Kern River Valley (Near Lake Isabella and the Kern River). There is so much new supply/inventory, that prices and bookings are WAY down. We converted one of our STRs into an LTR lately as it was not worth dealing with the extra STR hassles. Gas prices, recession, and tons of STRs have created a perfect storm for nightly rate decline. On the flip side it has been great for traveling. I got a San Diego STR for around half of what I paid the same week last year, and I have had the same experience in St. George UT too. Dramatically cheaper rates than previous years.
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Jason Kudo
Real Estate Agent · Pasadena, CA · Member since 2017 · 276 posts · 255 votes
3y
Quote from @Gene Hacker:

Make sure you look at very recent data, not 2021 when trying to determine performance. We have STRs in the Kern River Valley (Near Lake Isabella and the Kern River). There is so much new supply/inventory, that prices and bookings are WAY down. We converted one of our STRs into an LTR lately as it was not worth dealing with the extra STR hassles. Gas prices, recession, and tons of STRs have created a perfect storm for nightly rate decline. On the flip side it has been great for traveling. I got a San Diego STR for around half of what I paid the same week last year, and I have had the same experience in St. George UT too. Dramatically cheaper rates than previous years.

Inventory up and occupancy down is going to hold true in just about every market across the country and rising cost of goods, recession, etc is going to definitely hold true in every market.
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Nicholas Coulter
Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes
3y
@Maxzi Soto you could always try the local house hack STR model. That is what my wife and I are doing in San Diego.
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
3y
@Maxzi Soto San Diego is a great place to invest for the long term but I generally prefer newer investors start investing in their own area to start off or areas they know very well...going long distance is not easier. Good Luck! :)
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Pablo Flores
Rental Property Investor · Palm Springs, CA · Member since 2016 · 138 posts · 38 votes
3y
@Gene Hacker
How would you compare Kern River/ Isabella area to Three Rivers as a STR investment opportunity?
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Pablo Flores
Rental Property Investor · Palm Springs, CA · Member since 2016 · 138 posts · 38 votes
3y
@Maxzi Soto
It’s going to be hard to find the same opportunity from pre COVID. I manage 20 rentals in the greater Coachella Valley and occupancy and average daily revenue has gone down. The same home that would have been a great investment 2-3 years ago is barely breaking even. I don’t want to deter you, but you have to be much more judicious with your search and definitely have deeper pockets if you want to be successful in this market.
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Gene HackerPro Member
Flipper/Rehabber · Lake Isabella, CA · Member since 2011 · 974 posts · 488 votes
3y
Quote from @Pablo Flores:

@Gene Hacker
How would you compare Kern River/ Isabella area to Three Rivers as a STR investment opportunity?

Hi Pablo, I am not sure. I don't know or follow the three rivers area other than driving through a few times a year for kayaking. Dig into the data. How are current STRs doing? How booked are they? What are the nightly rates being offered by the ones that are consistently booked?
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Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
3y
I would be extremely cautious about adding any STR units in CA. STR are absolutely in the crosshairs of the politicians and there is growing opposition to them among the people. We've already seen cities outright ban them or create such burdensome regulations that they might as well be banned. They are being blamed for contributing to the housing shortage.
If you must invest in a STR in CA, I'd suggest staying far away from the large cities and find a smaller, Republican area. These will be the areas far less likely to impose STR restrictions and destroy your business overnight.
Keep in mind, even doing that, our beloved Governor Nuisance is a firm believer in allowing for local control... unless it goes against what he wants and then there needs to be a CA law forcing the local communities to follow his will. Therefore, we may find a CA law coming any day that heavily restricts STR in all of CA.
For me to have a STR in CA, it'd have to have awesome returns and be an easy switch to a LTR.
4 Reply
Andres Murillo
Real Estate Agent · Los Angeles, CA · Member since 2022 · 137 posts · 106 votes
3y
All comes down to budget and understanding of comps.
I analyzed a property with 14% CoC this week in Big Bear. At first glance it might not jump off your page. Priced at almost $2M with comps that show income potential between $25-32k per month.
Other markets are obviously cheaper but can still generate fantastic returns. I also sent out a Lake Front property for about $500k with a conservative 9% CoC return.
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