Best Places to Buy Investment Property in California in 2025

Are you looking to buy a rental property in California in the near future? Which up-and-coming submarkets in California aren’t oversaturated yet? Where rental demand is on the rise, making it easier to rent out or even sell for a profit later on?

Real estate investing in California is specific for several reasons. California, the economic powerhouse of the U.S. with a GDP of over $3 trillion, is also a paradise for beachgoers. It’s home to the entertainment industry and Silicon Valley, where the future of tech is shaped. All this makes it a prime spot for investors looking for a big return and significant property appreciation. And you should already be prepared for higher upfront costs and prices compared to other states.

Investment properties are real estate purchased to provide cash flow, multiply wealth, and create an asset that appreciates in value over time. Before purchasing, we need to research everything from local real estate conditions to factors like property taxes, the down payment needed to take a loan from a mortgage lender, cap rate, and expected cash flow.

In this article, we’ll highlight some of the top locations to buy a rental property in the Golden State and guide you through all the key details you need to know.

 Is California a Good Location for Investment Property in 2025?

Real estate investors in California can find a diversity of opportunities from urban areas to affluent coastal towns flooded with visitors. If we take a look at California’s real estate market, the current median home sale price of $855,100 is stable and rising steadily at 7.4% YoY, according to Houzeo. Homes sometimes spend as little as 30 days on the market, which indicates that the California real estate market remains competitive despite consistently high prices.

It seems that the recent AI boom has made Sicilon Valley even more attractive. Suburbs like Mountain View and Palo Alto have seen increased demand for single-family homes, as reported by Instalend. At the same time, the population in the Central Valley area is growing (U.S. Census Bureau) creating demand for rental properties in cities like Fresno or Bakersfield.

Real estate investing in California has always dealt with high upfront investments. What makes investing in California real estate a smart investment? A good investment property is one where you can expect strong property value growth, like in California. You can be practically sure that by buying rental property in this state you’ll benefit from long-term appreciation.

While interest rates may be similar to other states, high property prices will command higher mortgage payments. However, there are some advantages to buying rental property in California as well, such as lower property taxes due the Proposition 13, which will be discussed later in the text.

Short Term vs Long Term Rental Property

The question is whether you’re interested in long-term rentals or short-term rentals. If you opt for the latter, bear in mind that big cities like LA or San Diego have stricter government regulations for Airbnb, and often you need to live in the rental yourself in order to be able to list it on the platform.

And if you want to achieve revenue growth through a long-term renting model, factor in demand for rental properties in the area, housing prices, and monthly rent. In contrast, short-term rentals are chosen based on tourist influx, Airbnb occupancy rate, daily rates, seasonality, etc.

Best Places to Buy Residential Investment Property in California

Next, we will unveil some of the most promising cities where you can find lucrative opportunities for your real estate investment. Whether you’re interested in single-family homes, multi-family homes, or apartment complexes, these cities offer a diverse range of investment options. These cities are popular choices for primary residence and also present strong potential for income-generating properties.

Los Angeles

• Median Property Price: $ 1,120,000
• Median Rent Price 2 Rooms: $ 3,373
• Median Rent Price 4 Rooms: $ 6,475
• Cash on Cash Return: 2.00%

In the city of Angels, life isn’t cheap. High property prices mean investors will have to shell out a substantial down payment, and monthly rent is also steep. Despite this, Los Angeles remains a dream destination for many, and people are willing to pay a premium to live there.

With the 2028 Summer Olympics approaching, it’s likely that real estate prices will rise further, especially in the year leading up to the event. However, this could also present an opportunity for investors, as property values may appreciate significantly.

San Diego

• Median Property Price: $ 889,950
• Median Rent Price 2 Rooms: $ 3,167
• Median Rent price 4 Rooms: $ 5,096
• Cash on Cash Return: 2.00%

With its desirable climate, beautiful beaches, and vibrant culture, San Diego attracts a steady influx of residents and tourists. The appreciation rate for homes in San Diego has been around 8.6% over the past year (Zillow Home Values Index). But that’s nothing new; San Diego has historically seen consistent appreciation in property values. This reflects a steady increase in property prices due to strong demand and limited supply in the housing market.

The average gross rental yield in San Diego is roughly 5.27% according to Global Property Guide, which indicates the potential return on investment for rental properties based on current income relative to property prices.

Hawthorne

• Median Property Price: Around $944.000
• Median Rent Price 2 Room: $ 3,360
• Median Rent Price 4 Rooms: $ 4,248
• Cash on Cash Return: 3.00%

With its proximity to major employment hubs and the tech industry in Silicon Beach, LAX (Los Angeles International Airport) Hawthorne attracts a diverse tenant pool, including professionals and families. Despite pricing going up in recent years, over 70% of the population in Hawthorne are renters, which creates a steady demand for rental properties.

The local economy is supported by various industries, contributing to job creation and attracting new residents. A growing job market typically leads to increased demand for rental housing. A lot of parks, coffee shops, and easy access to public transportation and major highways make Hawthorne an attractive location for young professionals and families.

Santa Maria

• Median Property Price: Around $685.000
• Median Rent Price 2 Room: $ 2,736
• Median Rent Price 4 Rooms: $ 3,600
• Cash on Cash Return: 4.00%

The median property price in Santa Maria is approximately $685.000, making it significantly more affordable compared to nearby markets like Santa Barbara. This lower entry point allows investors to acquire properties without the high costs associated with other California cities.

Properties in Santa Maria typically remain on the rental market for only about 24 days (Redfin), suggesting a fast-moving rental market where landlords can quickly find tenants.

Fresno

• Median Property Price: $ 384,970
• Median Rent Price 2 Room: $ 1,360
• Median Rent price 4 Rooms: $ 2,581
• Cash on Cash Return: 5.00%

The median home price in Fresno is approximately $384,970, making it significantly more affordable compared to other California markets like San Francisco or Los Angeles.

Fresno has been experiencing steady population growth, which supports ongoing demand for housing, and monthly rents are increasing. While Fresno was known for cheap rent in the past, it is now the ninth most competitive rental market in the nation, according to a report from Forbes.

Best Places to Buy Vacation Rental Investment Property in California

Let’s take a look at some of the best places to buy rental property and list it on Airbnb, according to data provided by Mashvisor.

Riverside

• Median Price: $ 679,359
• Airbnb Occupancy Rate: 67%
• Average Airbnb Rent 2 Rooms: $ 3,166
• Average Airbnb Rent 4 Rooms: $ 5,151
• Cash On Cash Return for Airbnb: 4.00%

Riverside is conveniently located near major highways and is within driving distance to popular destinations such as Los Angeles and Palm Springs.

It attracts a range of guests, including families visiting local attractions, business travelers, and couples looking for weekend getaways.

Visalia

• Median Price: $437,450
• Airbnb Occupancy Rate: 69%
• Average Airbnb Rent 2 Rooms: $ 2,112
• Average Airbnb rent 4 Rooms:$ 4,437
• Cash On Cash Return for Airbnb: 5.00%

Visalia serves as a gateway to Sequoia National Park, attracting tourists who seek accommodations close to this stunning natural destination. The appeal of outdoor activities and scenic beauty supports demand for short-term rentals, especially during peak seasons.

Investors can expect an average monthly rental income of about $ 3,143 from their Airbnb listings. This potential revenue can provide a solid return on investment, especially when considering the relatively lower property acquisition costs.

Bakersfield

• Median Price: $ 399,999
• Airbnb Occupancy Rate: 65%
• Average Airbnb Rent 2 Rooms: $ 2,094
• Average Airbnb Rent 4 Rooms: $ 4,093
• Cash On Cash Return for Airbnb: 5.00%

The median home price in Bakersfield is approximately $399,999, making it one of the more affordable markets in California. As one of the cities in the Central Valley area with a constantly growing population, it’s safe to say that Bakersfield is experiencing a boom similar to that of Fresno and other nearby locations.

Bakersfield boasts a high Airbnb occupancy rate, and the potential for higher income makes Airbnb a lucrative option in this city.

Anaheim

• Median Price: $ 900,000
• Airbnb Occupancy Rate: 77%
• Average Airbnb Rent 2 Rooms: $ 4,248
• Average Airbnb rent 4 bedrooms: $ 8,523
• Cash On Cash Return for Airbnb: 5.00%

Anaheim is home to Disneyland, one of the most visited theme parks in the world, drawing millions of tourists each year and creating a high demand for short-term rental accommodations.

Beyond Disneyland, Anaheim offers various entertainment venues, including Angel Stadium and the Honda Center, which attract sports fans and concert-goers. With an impressive 77% average occupancy rate and strong rental profits, Anaheim is an excellent option for investing in Airbnb.

Stanton

• Median Price: $ 710,000
• Airbnb Occupancy Rate: 74%
• Average Airbnb Rent 2 Rooms: $ 3,352
• Average Airbnb Rent 4 Rooms: $ 7,679
• Cash On Cash Return for Airbnb: 3.00%

Stanton is conveniently located near popular attractions such as Disneyland, Knott’s Berry Farm, and other entertainment venues. While it’s close to Anaheim, properties in Stanton are generally more affordable.

Homes near these amenities can attract families and leisure travelers, and a 74% occupancy rate indicates strong demand throughout the year.

Elk Grove

• Median Price: $ 702,444
• Airbnb Occupancy Rate: 71%
• Average Airbnb Rent 2 Rooms: N/A
• Average Airbnb Rent 4 Rooms: $ 4,595
• Cash On Cash Return for Airbnb: 2.00%

The demand for short-term rentals in Elk Grove is bolstered by its proximity to Sacramento and various local attractions. Elk Grove is known for its family-oriented atmosphere, with numerous parks, recreational facilities, wineries and wine cellars. This appeal can attract families looking for short-term rentals during vacations or visits to local attractions.

As part of the growing Sacramento metropolitan area, Elk Grove also has the potential for property appreciation over time.

Key Factors to Consider Before Buying Rental Properties

It comes down to having a solid plan to finance the property and ensuring it generates a positive cash flow. There are a few things to consider, such as having enough cash in your bank account for a down payment.

Mortgage lenders expect a strong financial commitment from you. That’s why they will require you to show bank statements, proof of income, copies of tax returns, and demonstrate overall financial readiness. Alternatively, you can use a cash-out refinance model to finance your rental property.

The next biggest factor to consider is location. Think of macro-location, but think also about micro-location, if the property is close to public transportation, shopping centers and other places of interest. What can be reached within walking distance? How far away is the parking? What services are available nearby that would enhance the property’s appeal to potential renters?

A few metrics can help you understand the local market. Arguably the most important one is cash on cash return. CoC return helps investors understand the return on their cash investment and it’s calculated by dividing the annual pre-tax cash flow by the total cash invested.

The cap rate represents the rate of return on a property based on its net operating income (NOI) and the purchase price or current market value. It’s useful for comparing different properties and assessing the profitability relative to their cost.

Calculate ROI for the property you want to purchase by factoring in monthly rental income, annual rental income, and operating costs, including additional expenses like HOA fees. Protecting your rental property is equally important. Buy landlord insurance to safeguard yourself against guest/tenant damages, liability, and natural disasters. Major systems like heating, plumbing, and electrical should also be evaluated, as they may significantly impact operating expenses.

Tax Considerations for a Rental Property in California

When buying a rental property in California, understanding the tax landscape is crucial. In California, property taxes are generally based on the assessed value of the property. Under Proposition 13, the base tax rate is capped at 1% of the assessed value (which is still a lot of money if the property’s purchase price is high).

California property owners benefit from Proposition 13, which limits the annual increase in taxes to no more than 2% of the assessed value, providing stability in property tax expenses. However, when purchasing a rental property, this assessment resets to the current market value. Proposition 13 primarily benefits long-term property owners in California.

From an income tax perspective, rental income is taxable, but there are various tax deductions available, including mortgage interest, maintenance, and depreciation.

That is the main difference between owning residential properties for personal use and holding investment rental properties. Investment properties allow you to claim additional tax benefits like deductions on operating costs and depreciation, but they come with the responsibility of paying income taxes.

How to Maximize Rental Income from Your California Property

To maximize rental income from your California property, focus on keeping operating costs stable while increasing potential profits. New investors should prioritize understanding their annual expenses to effectively manage their budgets. Organize your property management wisely to prevent it from eating into your profits, especially if you’re involved in vacation rentals.

Having adequate homeowners insurance is essential to protect your investment properties and minimize financial risks involved with potential damages or liability claims.

Finally, one more way to maximize revenue is to implement an automation system. By incorporating iGMS into your vacation rental business, you will enjoy benefits such as:

• No double bookings
• Automated guest communications from a unified inbox and automated reviews
• Team coordination and cleaning management will be covered