San Diego Real Estate Investment Outlook
Should you consider San Diego real estate investment? You need to drill deeper into local trends if you want to know what the market holds for real estate investors and buyers in 2022 and 2023. Although this article alone is not a comprehensive source to make a final investment decision for San Diego, let’s look at the state of the San Diego real estate market and the factors driving the property market short and long-term.
Affordability has become an issue for many homebuyers in the San Diego area. This is another housing market trend that is affecting many major cities across the country but particularly in the western coastal markets. How big is the San Diego housing market? San Diego is a moderately walkable city in San Diego County with a population of approximately 1,305,700 people.
It is the second biggest California city and one of the ten biggest cities in the country. San Diego is one of the fastest-growing cities in the U.S, and its economy is strong. San Diego is often overlooked in favor of hotter real estate markets like San Francisco and Los Angeles. However, that’s one of the reasons why you should consider investing in the San Diego real estate market. The city of San Diego continues to outpace California's job recovery, which is good news for San Diego’s housing industry.
The San Diego metropolitan area is known as the birthplace of naval aviation, serving as a major employment center in the nation for defense and in the Southern California region for scientific research, health care, education, trade, and tourism. The significant military presence supports hundreds of thousands of jobs, pays billions of dollars in wages, and has an overall annual economic impact on the San Diego metropolitan area of billions of dollars.
San Diego's housing market remains one of the hottest in the nation (ranked 10th by Zillow). Since home building takes time, especially in a heavily regulated environment, there’s little chance of diminished demand. San Diego has been one of the hottest real estate markets in the country for many years. During the 20 years from 1998 to 2018, the median home value in San Diego rose by a whopping 217%. But the median household income only rose by around 77% during that same 20-year time frame.
San Diego has a mixture of owner-occupied and renter-occupied housing. As per Neigborhoodscout.com, a real estate data provider, one and two-bedroom single-family detached are the most common housing units in San Diego. Other housing types prevalent in San Diego include large apartment complexes, duplexes, rowhouses, and homes converted to apartments.
There were 4,100 single-family homes and 6,400 multi-family homes built in 2017, compared to 2,200 single-family homes and 7,800 multi-family units in 2016. Today, the general trend for SFR construction in San Diego County is still far below the 2002-2004 numbers. The next peak in single-family residential construction will likely begin around 2021, but it is doubtful to return to the frenzied mortgage-driven numbers seen during the Millennium Boom.
San Diego Real Estate Appreciation Rates
San Diego is in the top 20% nationally for real estate appreciation. NeighborhoodScout.com's data also shows that in the past ten years, San Diego real estate appreciated by 115.52%. This amounts to an annual real estate appreciation of 7.98%. During the latest twelve months, San Diego's appreciation rate has been around 16.35%.
In the latest quarter, the appreciation rate has been 2.79%, which annualizes to a rate of 11.64%. Overall, there exists a limited supply of homes in San Diego, and buyers are forced to compete often resulting in higher prices and/or quicker sales that tend to benefit sellers.
The San Diego Housing Market Is a Relative Bargain
California is known for its insane real estate prices. San Diego stands out as a relatively affordable real estate market. The median home price is around $550,000. This sounds bad if you compare it to the national average of $300,000, but it is a bargain in California. You could snap up several San Diego rental properties for the price of one home in San Francisco.
The San Diego housing market is cooling. Home price appreciation fell below 5%, and home prices in some areas are declining due to decreasing demand. This is an improvement over the 6 to 8% appreciation San Diego had been seeing. The expanding inventory of houses on the market makes this a great time to invest in the San Diego housing market.
San Diego's Housing Supply Is Constrained As New Construction of Homes is Quite Slow
San Diego is a growing housing market. By 2050, the population of San Diego County is expected to grow to 4.5 million, approximately a 50% increase from the population in early 2007 of 3,098,269 people. Population trends have connections with housing trends as it increases the demand for housing supply. However, construction in San Diego has stalled. Single-family residential construction is well below the demand for such homes in the San Diego housing market.
There has been faster growth in the construction of multi-family housing in the San Diego real estate market, but that is also below historic rates. Currently, both single-family and multi-family housing construction is increasing in San Diego. Even though there are more multi-family starts over single-family homes in terms of raw numbers, the percentage of single-family homes being constructed outpaces that of multi-family units.
San Diego also shares several geographic constraints that other California coastal cities do. You can’t build on water. The Cowles Mountains limit how much the city can expand inland, constraining the housing supply. Regulations limit high-density construction, preventing the area from meeting demand with too many tall condo towers. So, do the wilderness areas off-limits to construction like Cuyamaca Rancho State Park and Cleveland National Forest.
The Diverse Student Market Feeds the San Diego Rental Market
San Diego is a major metropolitan area, and it is home to several colleges and universities. The University of California at San Diego is one of the largest. It is sometimes confused with San Diego State University, a different campus, and the University of San Diego. Point Loma Nazarene University is a Christian school in San Diego. National University is located in nearby La Jolla.
Smaller schools like the Art Institute, Alliant International University, Azusa Pacific University, Brandman University, Miramar College, Mesa College, and California College of San Diego fill out the San Diego real estate market.
A side benefit of the diversified student market is that you can buy multiple properties across the San Diego housing market and enjoy a “diverse” investment portfolio. You won’t see demand for the property rise and fall based on the popularity of a flagship school, and the strong San Diego housing market allows you to rent it to newcomers to the area or military officers if you can’t fill the unit with students.
San Diego’s economy isn’t as reliant on tourism as other coastal towns. Instead, defense and the military are a larger part of the local economy. This dumps tens of thousands of renters into the San Diego real estate market who will never buy because they could be deployed elsewhere in a year or two. The military also gives generous allowances for those who rent San Diego rental properties, keeping rents near the military base strong regardless of the state of the economy.
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 creates massive demand for San Diego rental properties by those who simply cannot afford to buy homes. The rental market will continue to grow as the city grows an estimated 500,000 population by 2050, adding tens of thousands each year. The median rent in San Diego is $2700. The rent you’d receive on single-family San Diego rental properties would, of course, be much higher.
If you find a good bargain and make it family-friendly, you could charge well over $3000 a month. If you can convert San Diego rental properties into smaller units, you’d receive around $2200 a month for a one or two-bedroom apartment. The cash on cash returns for properties in the San Diego housing market is around 2.5% for traditional rental properties and nearly 2% if you rent on Airbnb. The fact that the city isn’t too dependent on tourism means you could rent properties on the beach to newcomers, locals, and students if tourism is slow.
Before the pandemic, the average rent for an apartment in San Diego had been growing at 4% year-over-year (source: RentCafe). About 40% of the apartments can be rented for less than $2000, and 60% of the apartments can be rented for more than $2,000 per month. This shows that rent prices are very high in San Diego.
Homeowners vs Renters Statistics: According to the most recent 2020 American Community Survey census data, San Diego County has a renter percentage of 46.7% which is the second most renter percentage of all the counties in the greater San Diego County region. The homeowner percentage is 53.3%. The monthly cost of ownership for property owners in San Deigo is around $2,073.
The median gross rent is $1,658, which is the third most expensive among all other counties in the greater San Diego County region. Comparing rental rates to the United States average of $1,062, San Diego County is 56.1% larger. Also, compared to the state of California ($1,503), San Diego County is 10.3% larger.
San Diego Rent Prices 2022
As of October 3, 2022, the average rent for a 1-bedroom apartment in San Diego, CA is $2,545. This is a 21% increase compared to the previous year. Over the past month, the average rent for a studio apartment in San Diego remained flat. The average rent for a 1-bedroom apartment decreased by -5% to $2,545, and the average rent for a 2-bedroom apartment decreased by -5% to $3,295.
- Two-bedroom apartment rents average $3,295 which is an 18% increase from last year.
- Three-bedroom apartment rents average $4,070 which is a 13% increase from last year.
- Four-bedroom apartment rents average $4,900 which is a 9% increase from last year.
San Diego Housing Market Is More Landlord Friendly For Short Term Rentals
We can’t say that California is landlord-friendly. However, specific cities are better for landlords and real estate investors than others. One reason to invest in the San Diego housing market over San Francisco or Los Angeles is the fact that San Diego is one of the few big cities that doesn’t have rent control. The city has groups fighting proposals to apply rent control to San Diego rental properties in addition to apartments.
San Diego has many tourist attractions. Balboa Park is home to the San Diego Zoo, the Air and Space Museum, the Natural History Museum, the Desert Garden, the local youth Symphony, a Japanese garden, and a golf complex. There’s a SeaWorld in San Diego, an MLB stadium, the USS Midway Museum, and the San Diego zoo safari park. On top of this is the mild weather and proximity to the beach. Any San Diego rental properties in easy reach of these attractions command a premium on rental sites like Airbnb.
Demand for rentals in the San Diego real estate market soars during Comic-Con, one of the biggest comic conventions in the country. The only limit on San Diego rental properties has been the fluctuating rules by the city council, such as a measure passed limiting rentals to primary residences that were rescinded a few months later in 2018. Yet permission for rentals is limited in many master-planned communities and condo developments, keeping rents for Airbnb and other short-term rentals strong.
San Diego Is A Great Place Place To Live In
San Diego is a great place to live which makes real estate investment a lucrative opportunity. It has nice sunny weather and impressive beaches. It has more than 300 parks, including Mission Trails Regional Park, and 40,000 acres of undeveloped open space. Balboa Park has the world-famous San Diego Zoo, Old Globe Theatre, and museums. San Diego Zoo is also one of the prettiest zoos in the world to walk around. U.S. News analyzed 125 metro areas in the United States to find the best places to live based on the quality of life and the job market in each metro area, as well as the value of living there and people's desire to live there.
San Diego, California was ranked:
- #36 in Best Places to Live
- #51 in Best Places to Retire
- #3 in Best Places to Live in California
- #5 in Most Expensive Places to Live
- #9 in Best Places to Live for Quality of Life
- #12 in Safest Places to Live
San Diego is home attracts millennials with its higher education opportunities and big-city amenities such as excellent restaurants, dive bars or clubs, and great nightlife. The craft beer scene in San Diego is one of the best in the world. North County is desirable for young families whereas millennials are moving downtown and to communities to the northeast as a result of gentrification and the diverse entertainment options centralized in those areas.
Best Places to Invest in Real Estate in San Diego
Are you looking for an investment property in the San Diego real estate market? In any property investment, cash flow is gold. San Diego offers an ideal mix of limited supply, high demand, and excellent income potential. San Diego's mild climate, miles of beaches, fun attractions, and great schools make the city one of America's best places to live.
If you’re going to invest in California, it needs to be in San Diego. Good cash flow from San Diego investment properties means the investment is, needless to say, profitable. On the other hand, a bad cash flow means you won’t have money on hand to repay your debt.
Therefore, finding the best investment property in San Diego in a growing neighborhood would be key to your success. The three most important factors when buying real estate anywhere are location, location, and location. The location creates desirability. Desirability brings demand. You should focus on neighborhoods with relatively high population density and employment growth.
Both of them translate into high demand for housing. There should be a natural and upcoming high demand for rental properties. Demand would raise the price of your San Diego rental property and you should be able to get a good return on your investment over the long term.
The neighborhoods in San Diego must be safe to live in and should have a low crime rate. The neighborhoods should be close to basic amenities, public services, schools, and shopping malls. A cheaper neighborhood in San Diego might not be the best place to live in.
A cheaper neighborhood should be determined by these factors – Overall Cost Of Living, Rent To Income Ratio, and Median Home Value To Income Ratio. It depends on how much you are looking to spend and if you are wanting smaller investment properties or larger deals in Class A neighborhoods. The inventory is low, but opportunities are there.
Some of the popular neighborhoods in or around San Diego are Carmel Valley, Rancho Bernardo, Point Loma, Pacific Beach, Mission Valley, Mira Mesa, Rancho Penasquitos, Bonita, Del Cerro, North Park, La Jolla, 4s Ranch, Mission Hills, Otay Ranch and Rancho Santa Fe.
As we write this, the asking price of single-family homes for sale in San Diego (on Realtor.com) starts from $132,000 for a 3-bedroom house and can go up to $37M for a luxury 10-bedroom house located in the Northern San Diego neighborhood.
You can get a beautiful 3-bedroom new construction single-family house for around $379,000 in the Southern San Diego neighborhood — which is quite an affordable entry price as San Deigo home prices are some of the most expensive in all of the United States.
Here are some of the best neighborhoods in San Diego where you can buy an investment property.
Encanto is one of San Diego’s most affordable neighborhoods if you want to buy an investment property. According to Neighborhood Scout Encanto’s median real estate price is $469,345, which is cheaper than 71.3% of California neighborhoods and 21.5% of all U.S. neighborhoods. Encanto is a hilly neighborhood located in the southeastern part of San Diego, California. The neighborhood of Encanto is split into two sections, North Encanto (which lies north of Broadway), and South Encanto (which lies south of Broadway).
The name Encanto usually refers to the neighborhood of Encanto, but it can also refer collectively to the neighborhoods of the Chollas Valley planning area, which consists of Chollas View, O'Farrell, Lincoln Park, Emerald Hills, Valencia Park, Broadway Heights, Alta Vista, Rosemont, as well as Encanto. The citizens' community planning group that represents these eight neighborhoods in accordance with the City of San Diego Council Policy 600-24 is named the Chollas Valley Community Planning Group.
The Encanto Neighborhoods Community Plan is designed to expand the existing retail, commercial and light industrial areas along the main transportation corridors and the villages surrounding the trolley stops at 47th and Market streets, and Euclid Avenue and Market Street. Its cultural heart is the Market Street Village, situated along Chollas Creek, and the trolley stop at the intersection of Euclid Avenue and Market Street.
With its proximity to San Diego Bay just 2 1/2 to 5 miles away, temperatures tend to be mild. The area offers excellent opportunities for infill development, including commercial, transit-oriented mixed-use along the main corridors, and view lots for single-family residential in the surrounding hills.
Nestor is another relatively affordable neighborhood in San Deigo having a median real estate price of $579,106, which is more expensive than 42.9% of the neighborhoods in California and 84.6% of the neighborhoods in the U.S. The average rental price in Nestor is currently $1,881, based on NeighborhoodScout's exclusive analysis. Rents here are currently lower in price than 77.6% of California neighborhoods. Nestor is a residential neighborhood in the southern section of San Diego, and part of the Otay Mesa-Nestor community planning area. According to Zillow, Nestor's home values have gone up 29.4% over the past year.
It neighbors Palm City and Otay Mesa West to the east, Egger Highlands to the north, San Ysidro to the southeast, and the Tijuana River Valley to the south. Major thoroughfares include Coronado Avenue, Saturn Boulevard, Hollister Street, and Tocayo Avenue. According to Areavibes.com, the cost of living in Nestor is 19% lower than the San Diego average and 13% higher than the national average. On their livability index, it ranks better than 42% of areas in San Diego.
The Otay Mesa-Nestor community planning area is located in the southern region of the City and is bounded on the north by Chula Vista, on the east by the community of Otay Mesa, on the south by the Tijuana River Valley and the San Ysidro community, and on the west by Imperial Beach. Twenty percent of the planning area consists of schools, parks, transit, and other public facilities, while vacant, undeveloped, agricultural, and mineral extraction and processing uses comprise the remaining 15 percent.
Emerald Hills is a fairly good neighborhood in San Diego to invest in real estate. It is a calm neighborhood with many green spaces nearby for residents to visit. Most areas in this neighborhood are quiet, as noise from the streets and other parts of the city is rarely an issue. It is bordered by Oak Park and California State Route 94 on the north, Chollas View and Euclid Avenue on the west, Encanto on the east, and Valencia Park and Market Street on the south. Major thoroughfares include Kelton Road and Roswell Street.
Most houses for sale in this neighborhood are located in places that are not very suitable for walking since carrying out daily needs is sometimes difficult. The typical home value in Emerald Hills is $659,983, up 33.0% over the past year.
Another urban area that is great for investment is the Downtown/City Center. It is one of the best places to live in California. It offers residents a dense urban feel and more than 70% of the residents rent their homes. So it is a great neighborhood to buy rental properties due to high demand. Downtown's public schools are above average. It offers good nightlife with restaurants, bars, and entertainment venues. Niche.com ranks it #25 among the best neighborhoods to live in San Diego.
Highest Growing San Diego Neighborhoods Since 2000 (List by Neighborhoodscout.com)
- Mountain View Southeast
- Logan Heights West
- Logan Heights
- Barrio Logan
- Golden Hill South
- Grant Hill West
- East Village
- Sherman Heights
- Mountain View East
- Barrio Logan East
The cheapest or most affordable neighborhoods to rent in San Diego are Alta Vista, where the average rent goes for $1100/month, Broadway Heights, where renters pay $1100/mo on average, and Emerald Hills, where the average rent goes for $1100/mo, Encanto, where renters pay $1100/mo on average $1,383, Jamacha Lomita with an average rent of $1100, and Skyline, where the average rent price is 1100. In all of these areas, the asking prices are below the average San Diego rent.
Apart from San Deigo, you can also invest in several other real estate markets in California. California has the 6th largest economy in the entire world. This is largely driven by its innovative production, the heavy tech sectors in the state, and more. Apart from the San Diego real estate market, you can also invest in another hot market in San Jose. San Jose is part of Silicon Valley, a place where $100,000 a year or higher salaries from competing tech firms have driven up the cost of real estate.
But what about the San Jose housing market itself? San Jose is the third-largest city in California, home to roughly a million people. It has the highest cost of living in any area in the U.S., and it is one of the most expensive housing markets in the country. If you want to invest in San Jose real estate, you may not need to buy and renovate. Instead, if you know of industrial or commercial properties near major employers they may need to convert to employee housing, which you could buy now and hold until it sells.
If that doesn’t happen, you could still turn it into a co-working space. In January 2018, Redfin ranked the ten hottest neighborhoods in the United States. Nine of the ten were in San Jose. When single home prices fall from 1.2 million to 1 million, homes now sit on the market for several days instead of being snapped up immediately.
The other good place for real estate investment in California is Sacramento. Sacramento is an island of sanity in an overpriced, over-regulated, and overheated West Coast housing market. It reflects the California ideal that most of the state has lost, and that’s we recommend it to investors over the “hotter” California metro areas. These are the same factors causing many Californians themselves to vote with their feet and move here instead of moving out of the state altogether.
If you’re considering Sacramento real estate investment, the diverse rental market is a definite plus. Being a state capital, it is home to several universities. This allows you to rent to the relatively large student market in addition to the local population. There is, of course, the University of California campus in Sacramento, but you could own investment properties by American River College and other, smaller schools in the area, too.
Buying or selling real estate, for a majority of investors, is one of the most important decisions they will make. Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.
NORADA REAL ESTATE INVESTMENTS has extensive experience investing in turnkey real estate and cash-flow properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in many other growth markets in the United States. We can help you succeed by minimizing risk and maximizing the profitability of your investment properties.
Not just limited to San Diego or California but you can also invest in some of the best real estate markets in the United States. All you have to do is fill up this form and schedule a consultation at your convenience with our team to see if San Diego makes sense as a place to invest today.
We can help build you a custom portfolio of turnkey properties located in some of the best markets in the United States. By researching and structuring complete turnkey real estate investments, we can help you succeed by minimizing risk and maximizing profitability.