You probably have heard about the scorching hot San Jose rental property market. According to Utopia Management, the bustling San Jose rental property market boils down to a simple economics principle.
Supply and demand.
Silicon Valley and the demand for high tech workers have also expanded the demand for rental property housing. An investment in a San Jose rental property made more than a decade ago should generate an incredible return on the investment. The same principle applies today for an investment made in a San Francisco rental property.
With much of the attention on San Jose, San Francisco often gets lost in the discussion about Bay Area rental property investment opportunities. Well, the city by the Bay should be at the forefront of rental property investment properties for several compelling reasons.
Overview of the San Francisco Real Estate Market
The impact of the Bay Area tech boom is just one factor that has driven high demand for Bay Area rental properties. San Francisco has also benefited from an urban expansion that has allowed developers to build out instead of building up. The result is prices have rapidly climbed for rental properties, while demand has, at the very least has kept pace with rental property construction projects.
Let’s look at a few statistics for the San Francisco rental property market.
- Price per square foot-$998
- Median price for rental properties-$1,566,399
- Rental income-44,376
- Price to rent ratio-30
Reasons for the Booming San Francisco Rental Property Market
Some rental property investors shun the San Francisco market because they believe the market is vastly overpriced. Although rental property prices in the Bay Area have approached record highs, there are far too many factors involved that make the San Francisco market ideal for investing in rental properties.
Strong San Francisco Economy
About as hot as the rumor that Tom Brady is coming to the 49ers, the San Francisco economy boasts one of the lowest unemployment rates of any major city in the United States. GDP per capita recently soared above the $100,000 threshold, with a GDP growth rate reaching nearly 30% for the second half of the second decade of the new millennium. San Francisco has one of the top 10 quickest economic growth rates in the country.
The red hot economy bodes well for the San Francisco rental property market.
Healthy Population Growth
One of the most important factors that determine a city’s economic growth is the growth of the population. It is not just the entire Bay Area that has experienced robust population growth over the past 10 years. San Francisco has led the way by enjoying a population growth rate that approaches 10%. The strong population growth rate is about two times higher than the national average. Like we said, rental property prices are mostly influenced by demand. More residents living in San Francisco means a higher demand for rental properties.
High Rate of Appreciation
The most recent data released by a Bay Area real estate appraisal firm places the appreciation rate for San Francisco real estate at slightly above 10%, which is higher than the average appreciation for residential real estate in the United States. Although supply and demand play a pivotal role in increasing the value of rental properties, you should also factor in the dedication both civic and political leaders have shown for revitalizing previously downtrodden neighborhoods. Instead of a strong demand for rental properties concentrated in just a few neighborhoods, a large number of San Francisco neighborhoods have witnessed an increase in rental property appreciation rates. This is relatively uncommon in most states. Many areas see focused growth in particular neighborhoods, with other typically suburban neighborhoods decreasing.
Profitable Stream of Rental Property Income
Profit is a simple motivating factor for investing in rental properties, and in San Francisco, the average investment property income of more than $4,300 is much higher than the national average. With strong demand comes full occupancies, which gives rental property investors much more flexibility when it comes to setting rental prices. You should note that the average rental property income is for the entire city of San Francisco. There are a few neighborhoods that stand out as the most lucrative places to make rental property investments.
Tech Savvy, Young, Mobile Population
With the young generation populating this area, you are met with a more mobile population that is attracted to renting vs. owning a home. They will be well versed in digital research to compare rental prices and property sizes and amenities. This translates well for your San Francisco investment because they will not need to be educated on the higher rents demanded in this area. Keep in mind this young population expects tech-savvy property management, such as accepting online payments, digital lease management, and instant communication.
Most property management companies will handle this for you. However, if you are self-managing, there are tools available to meet the demands in this area. Adobe can scan leases for digital signing. You can set up your credit card processing account with a company that specializes in high-risk merchant accounts to be able to take mobile payments or use Venmo or Paypal.
Best San Francisco Neighborhoods for Rental Property Investments
Rental property investors in San Francisco should understand that the data for each neighborhood varies significantly. Let’s look at three areas that have a thriving rental property market.
Inner Sunset
- Price per square foot-$808
- The median price for rental properties-$1.745,833
- Rental income-$4,593
- Price to rent ratio-32
South Beach
- Price per square foot-$1,717
- Median price for rental properties-$1,946,333
- Rental income-$5,043
- Price to rent ration-32
Potrero Hill
- Price per Square foot-$863
- Median price for rental properties-$1,198,250
- Rental income-$4,477
- Price to rent ratio-22
Despite the high demand for a limited supply of rental properties, San Francisco remains one of the most lucrative opportunities for investors. Remember that it takes much more than spotting the next big neighborhood for investing in San Francisco rental properties. You also have to commit to maintaining high-quality living spaces for your renters.
