The Golden State is one of the best places for real estate investments in the nation. California has provided real estate owners with outsized wealth growth over the last 40 years, and market conditions are especially favorable for investment property owners.
Here’s why you should invest in an apartment in the state:
- Property tax limits
In 1978, almost two-thirds of California’s voting population passed Proposition 13 in response to property tax levies. The move successfully reduced property tax rates on residences, farms, and businesses by as much as 57 percent.
As a result, regular property taxes in the state are one percent of the sales price. The initial amount you pay can increase by a maximum of two percent each year, but property owners have seen an average annual increase of just 1.5 percent since Prop 13 was passed – a welcome change for Californians and the state’s property investors.
Prior to Prop 13, by contrast, property tax rates averaged about three percent of the development’s market value, and there was no limit on tax rate increases.
In most states today, taxes climb in relation to property values each year. But not so with California, which is an advantage for real estate owners.
- Land supply
There’s little land available in California’s most coveted metropolitan areas, as well as in places within reasonable commuting distance of the state’s bustling employment centers. In San Diego county, for instance, there are few parcels within an hour’s drive of the city, and all of them have already been secured for development. There are only about 25,000 vacant lots left before the county gets completely built out.
The same goes for other counties and cities in the state – there’s a scarcity of undeveloped land in Los Angeles, San Francisco, and Orange county. Low supply means prices for land and homes will increase in the long term.
- Restrictions on land development, permitting, and construction
Aside from limited land supply, there are many hurdles to developing land in the state. A group of residents might oppose the developer and demand lower unit density, a landowner may demand a fortune for the parcel, the city may have high building permit fees and construction costs, and so on. These issues keep the housing stock limited, which restricts supply and increases the value of existing properties.
If you manage to get past these obstacles, you’ll be the owner of a prized piece of investment property. You can hold the property until such a time when you can refinance and use the equity to purchase another one.
- Population growth
The US population is expected to increase within the next 50 years, and the majority will want to live in coastal areas. The California Department of Finance (DOF) has projected an annual growth rate of 0.7 percent over the next five decades, with the local populace swelling from 37.3 million in 2010 to about 51.7 million in the year 2060.
The demand for shelter will inevitably soar as the population grows. It’s also likely for California’s property values to continue rising, given the increasing number of residents and the state’s overall desirability – the excellent weather, fantastic beaches, cultural centers, and major employers are just some of the few reasons why people want to live here.
These are compelling reasons why you should purchase rental property in the state. Make smart buying decisions by working with experienced local brokers who know the area and manage the properties in order to maximize profits
