Targeting The Right Market
When you’re just starting out with buying rental properties, you should probably opt for a market where there’s a consistently high level of demand for rentals.
In short, I suggest that you avoid places like Palo Alto, Atherton, Mountain View, and Cupertino. Instead, consider municipalities like Fresno, Bakersfield, Pomona, San Bernardino, Berkeley, San Fernando, Encinitas, Stanford, or Eureka.
By focusing on these areas, you won’t need as much capital to purchase the average rental unit, nor will you need to invest as much in renovations to bring purchased units up to the quality that the market expects. Plus, you’ll have an ample supply of eligible tenants and enough turnover of properties on the market that you’ll have an easier time finding additional expansion opportunities when you’re ready to buy a new holding.
There are two other important things to consider when targeting the right sub-market within California that I haven’t addressed so far: local government and local residents.
Some of the more upmarket towns and counties are more reluctant when it comes to real estate investors operating rental units in their areas. Ordinances and various community associations may block your efforts to develop properties into rental units, or make the process significantly less efficient and more time-consuming via burdensome paperwork and arcane inspection requirements.
I highly recommend avoiding competing in these markets until your business is significantly established elsewhere, or until you have connections to local leaders who can help you navigate the process.