Based on real estate experts about the San Diego rental market trends in 2021, should you invest?
WeLease, as a San Diego property management company, offers potential investors straight facts. We researched what the experts say about San Diego’s rental market trends for 2021. Here is what they predict.
San Diego Rental Market Trends 2021 – a Relative Bargain
Relative to what? California real estate prices stand amongst the most expensive in America. According to an October 2020 Globe Street survey, “California Markets Among the Most Expensive in the US”.
In 2020, San Diego boasts a median home price of around $550,000. Compared to the national average of $300,000. Sure, while it looks bad nationally, it’s a bargain in California. You can buy several rental properties in San Diego for the same price as one house in San Francisco.
San Diego’s market is so strong in 2020 despite the pandemic we saw increases of 12% as of November 2020 according to the Greater Association of San Diego Realtors.
San Diego’s Housing Supply is Limited because of Lesser New Home Construction
New home construction in San Diego stalled in 2020. San Diego’s single-family residential construction falls far below demand. Even multi-family housing construction in San Diego slowed down this year.
Therefore, investing in San Diego’s new single-family rentals looks appealing.
We published a blog post here that included how to “buy smart rental properties”. One tip included that single-family homes attracted more long-term tenants. View Property Tips for Rental Owners.
San Diego Offers a Diverse Student Market for Rentals in 2021
According to Business Insider, rental market experts agree that college students provide an excellent source for rental properties.
San Diego enjoys many colleges and universities such as:
- University of California at San Diego;
- San Diego State University;
- University of San Diego;
- Point Loma Nazarene University; and
- San Diego National University in nearby La Jolla.
Other smaller institutions include:
- Alliant International University;
- Art Institute;
- Azusa Pacific University;
- Brandman University;
- California College of San Diego;
- Mesa College;
- Miramar College; and
- Thomas Jefferson School of Law.
San Diego Offers Many Military Personnel as Renters
The Thomas Jefferson School of Law disclosed these facts about San Diego. Home to the largest concentration of military personnel in the country. Also, over 100,000 active-duty service members live in San Diego.
A large part of San Diego’s economy depends upon defense contractors and the military. Tens of thousands of renters boost San Diego’s rental market as a direct result of the many defense contractor companies and military bases.
These renters don’t buy housing because most end up deployed elsewhere within two years. Also, the military provides generous housing allowances to its service personnel who rent properties near their military bases.
Here’s a list of the seven military bases in or near San Diego:
- Camp Pendleton Marine Corps Base;
- Marine Corps Recruit Depot – San Diego; with more than 21,000 recruits training here every year;
- Marine Corps Air Station Miramar;
- Naval Base Point Loma;
- U.S. Coast Guard Station – San Diego;
- Naval Base Coronado with 5,000 navy personnel and 7,000 reservists; and
- Naval Base – San Diego the largest naval base on the West Coast with over 21,000 navy personnel and over 5,000 civilians.
We published an article about the advantages of renting to military personnel in San Diego filled with tips, facts, View Investing Near Military Bases Makes Sense In San Diego.
San Diego Rental Prices Keep Increasing
San Diego’s real estate market ranks as one of the most expensive in the country. Thus, a great demand exists for rentals because most can’t afford to buy a home.
By 2050, experts predict San Diego’s rental market to increase by 500,000. Source
Tip: In 2020, San Diego’s median rent is $2,700. But, rents for family-friendly single-family homes cost over $3,000 a month. Better yet, converting large properties into one or two-bedroom apartments could earn you $2,200 a month for each.
Rental Trends: In September 2020, the average rent for a San Diego apartment was $2,327 a 3.51% increase from a year ago. Also, 39% (198,653) of San Diego households are rental-occupied. Expect these numbers to increase because of the COVID-19 pandemic.
San Diego is Landlord Friendly
California as a state is not landlord-friendly due to its new statewide rent control law and other local government restrictions. This law took effect on January 1, 2020. It places a cap in rent increases at 5 percent (after inflation) for the next 10 years for certain rentals.
But San Diego maintains a big advantage over sister cities like Los Angeles and San Francisco with their local rent control ordinances. That’s because San Diego never enacted rent control.
Rent control favors tenants by preventing landlords from raising rents. A recent post in our blog explains the California rent control law in greater detail. View What is “Rent Control” in California?
People Love Living in San Diego
It’s not just the year-round warm weather, long sunny months, and all the water and beach activities that make San Diego popular. San Diego provides more than 300 parks and over 40,000 acres of undeveloped open space.
Of course, San Diego attracts millions of tourists to its world-famous San Diego Zoo and other attractions. A city enticing that many tourists is good for its economy and makes short-term rental landlords happy.
- #3 in Best Places to Live in California;
- #5 in Most Expensive Places to Live (that’s good for landlords); and
- #15 in Best Places to Live for Quality of Life.
The Best Areas to Invest in San Diego Rentals in 2021
Once you decide to invest in San Diego you need to know the best areas. Look for growing neighborhoods. As the old real estate saying goes “Location, location, and location”. Location means appeal which creates demand. Look at neighborhoods with employment growth in a high population density.
Upcoming demand raises rental prices. This brings you a good return on your rental investments. Seek safe neighborhoods with low crime, good public services, basic amenities, shopping malls, and great schools.
WeLease also published a post here suggesting that poor locations threaten rental investments along with other useful tips. View What Threatens Rental Investments the Most?
What are the best rental investment areas for 2021?
- Black Mountain Ranch for long-term renters as this area attracts families;
- Del Mar Mesa Neighborhood to attract long-term family renters. Niche gives this neighborhood an A+ rating due to its low crime, good schools, and quality of life for families;
- Pacific Beach short term rentals for vacationers looking to rent on a nice beach;
- Point Loma offers fabulous views of the city and harbor with lots of great restaurants and urban shopping. Should increase in value due to its popularity. Great long-term rental investments; and
- South Park‘s uniquely diverse community close to downtown San Diego. An urban neighborhood poised for growth.
Mashvisor provides real estate investment data analysis to real estate investors. They recommend these four San Diego neighborhoods for rental investments in 2021:
- Ridgeview-Webster with a traditional Cap Rate/Cash Return of 8.9%;
- Emerald Hills offering a traditional Cap Rate/Cash Return of 4.4%. The NextDoor site found that Emerald Hills residents love this neighborhood because it’s friendly, clean, peaceful, and quiet;
- Encanto with a traditional Cap Rate/Cash Return of 4.3%. The Niche site rates the Encanto neighborhood with an A+ for diversity and A- for nightlife; and
- Nestor providing a traditional Cap Rate/Cash Return of 3.9%. The Neighborhood Scout site finds the Nestor neighborhood ideal for military rentals.
Learn what CAP rates mean by viewing another of our blog posts How to understand CAP and ROI rates.
Likewise, other popular neighborhoods in or near San Diego include:
In conclusion, the San Diego rental market trends in 2021 appear favorable for investments. Here’s why:
- The COVID-19 pandemic and less construction create a limited housing supply in San Diego;
- Rental demands remain strong in San Diego due to a large number of college students, military personnel, and defense contractors;
- Rental prices will continue to increase in 2021 and beyond;
- San Diego is landlord friendly with no local rent control;
- Residents love living in San Diego; and
- U.S. News ranks San Diego as the 3rd best place to live in California, the 5th most expensive place to live in the U.S., and the 15th best place for quality of life in the U.S.
We only listed a few areas and neighborhoods to consider for your real estate rental investments. Let the experienced staff at WeLease assist you with learning about the types of San Diego neighborhoods that fit your goals.
Contact WeLease for all your property management needs in the greater San Diego area.
Steven Rich, MBA – Guest Blogger
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