Should You Invest in Traditional Rentals or Airbnb Rentals in The California Rea

The California real estate market is full of potential real estate investments, there’s no question about that. The question is, what’s better for you – traditional rentals or Airbnb rentals?

Nowadays, just investing in a rental property is not enough. There’s much more to decide when it comes to real estate investing. The popularity of Airbnb has really affected the housing market. Real estate investors are now deciding where to invest based on factors that didn’t exist a decade ago. For some, the best places to invest in real estate, are those with higher Airbnb profitability. For others, the performance of traditional rentals is more important. Whether you’re buying an investment property based on location or type, you should definitely continue reading this blog before investing in the California real estate market.

Related: California Is Emerging as the Best Place to Invest in Real Estate in the Coming Years

The California Real Estate Market – Airbnb or Traditional?

So, you’re interested in the California real estate market. It’s natural to have questions about the types of income properties. Before we get into the numbers, let’s first discuss the differences between a traditional rental property and an Airbnb rental property.

Related: Real Estate Investing: Traditional vs. Airbnb Investments

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Traditional Rental Properties

Traditional rentals could either be short-term or long-term. A deal is made between you, the real estate investor, and the tenant in which you lease an empty space to them and they give you a check. As long as you’re managing the property and attracting good tenants, you should expect a profitable rental income. This is the traditional way of real estate investing.

Airbnb Rental Properties

An Airbnb property is one that has been purchased and listed on the Airbnb website. It functions as a short-term rental property, so it’s great in locations with high tourism. An Airbnb profitability calculator will come in handy when searching for the best investment properties to rent for the short-term. You’d be shocked at the number of people who’d rather stay in an Airbnb rental than at a hotel suite.

Before investing in such a property, however, there are a couple of things to keep in mind. An important one is that you’d be taking on the role of both real estate investor and Airbnb host. Your ‘tenants’ are your guests and you’re not just providing a product (the property), you’re also providing a service. Knowing how to manage your property and becoming the best host is crucial for your real estate investing career when you choose to go down the Airbnb path.

Related: Four Things to Consider Before Purchasing an Airbnb Investment Property

The California Real Estate Market – The Numbers

Maybe you’re looking for the best neighborhoods in the California real estate market regardless of the type of investment property. Maybe you’re searching specifically for locations with better performing Airbnb/traditional properties. Either way, here are the numbers for the major cities in the California real estate market:

Note: All data is provided by Mashvisor’s investment property calculator.

Los Angeles

Median Property Price: $950,039Monthly Traditional Rental Income: $3,108Traditional Cap Rate: 1.13%Traditional Cash on Cash Return: 1.13%Monthly Airbnb Rental Income: $3,472Airbnb Cap Rate: 0.77%Airbnb Cash on Cash Return: 0.77%

If you’re investing in LA, you should probably opt for a traditional rental property. Because it has a higher cap rate and a modest rental income. The high property price is matched better with a traditional investment, as you can see. Traditional rental properties have a higher return on investment and make more rental income in most of Los Angeles’s neighborhoods. To search for investment properties in Los Angeles, click here.

San Francisco

Median Property Price: $1,623,042Monthly Traditional Rental Income: $4,685Traditional Cap Rate: 0.9%Traditional Cash on Cash Return: 0.9%Monthly Airbnb Rental Income: $4,046Airbnb Cap Rate: 0.97%Airbnb Cash on Cash Return: 0.97%

The San Francisco real estate market is known for its jaw-dropping property prices. Because of the high cost of living, it’s expensive for both the real estate investor and the tenant. Traditional rental income is slightly higher than Airbnb rental income, but Airbnb cap rate and CoC return is slightly higher than the traditional. It all comes down to the specific property and neighborhood you’re investing in. You can conduct a real estate market analysis and neighborhood analysis with Mashvisor to find the best locations for real estate investing. To search for investment properties in San Francisco, click here.

Sacramento

Median Property Price: $370,263Monthly Traditional Rental Income: $1,380Traditional Cap Rate: 0.98%Traditional Cash on Cash Return: 0.98%Monthly Airbnb Rental Income: $864Airbnb Cap Rate: 1.06%Airbnb Cash on Cash Return: 1.06%

Sacramento’s low property prices come with lower monthly rental income. As you can see, traditional rental properties seem to be performing better at the city level. To search for investment properties in Sacramento, click here.

Joshua Tree

Median Property Price: $281,319Monthly Traditional Rental Income: $952Traditional Cap Rate: 0.97%Traditional Cash on Cash Return: 0.97%Monthly Airbnb Rental Income: $2,588Airbnb Cap Rate: 6.71%Airbnb Cash on Cash Return: 6.71%

Joshua Tree is clearly holding some great Airbnb rental properties. Airbnb properties have got a great cap rate and CoC return of 6.71%. The monthly rental income of $2,588 is great when compared to the low property price. To search for investment properties in Joshua Tree, click here.

San Jose

Median Property Price: $1,054,788Monthly Traditional Rental Income: $2,985Traditional Cap Rate: 0.9%Traditional Cash on Cash Return: 0.9%Monthly Airbnb Rental Income: $1,959Airbnb Cap Rate: 0.15%Airbnb Cash on Cash Return: 0.15%

San Jose is another expensive city in the California real estate market. With such low cap rate and CoC return for Airbnb properties, we’d recommend investing in traditional rentals if you’re considering San Jose. To search for investment properties in San Jose, click here.

San Diego

Median Property Price: $826,080Monthly Traditional Rental Income: $2,673Traditional Cap Rate: 1.18%Traditional Cash on Cash Return: 1.18%Monthly Airbnb Rental Income: $3,620Airbnb Cap Rate: 1.77%Airbnb Cash on Cash Return: 1.77%

San Diego seems to be holding better performing Airbnb rentals. Airbnb rental properties are gaining over $1000 more in rental income than traditional rentals! To search for investment properties in San Diego, click here.

Anaheim

Median Property Price: $588,186Monthly Traditional Rental Income: $2,650Traditional Cap Rate: 1.68%Traditional Cash on Cash Return: 1.68%Monthly Airbnb Rental Income: $3,503Airbnb Cap Rate: 3.46%Airbnb Cash on Cash Return: 3.46%

Even though the numbers for Airbnb rental properties look better, traditional rentals are actually the better choice. That’s because earlier this year, Anaheim made renting out on Airbnb illegal. Still, you can earn rental income with long term rentals here. To search for investment properties in Anaheim, click here.

Note: Mashvisor provides many tools that aim to help real estate investors find the best investment properties through investment analysis. To find out how you can conduct an investment property analysis, click here.

Final Words on the California Real Estate Market in 2018

Finding the best investment property depends on multiple factors, even if you’re looking at the same city in the California real estate market. One neighborhood might have great performing Airbnb rentals and the next would be holding great traditional rentals. To make the right decision, you need to have accurate data. Reliable resources are key in the real estate investing world! You can always count on Mashvisor with your real estate investments. To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.

To learn more about how we will help you make faster and smarter real estate investment decisions, click here.

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