If you’re thinking about investing in California real estate, you’ll want to choose your market carefully. Buying an investment property in San Francisco is going to come with a lot of risk. Prices are extremely high, for example, so you won’t have a lot of positive cash flow over the first few years.
In a real estate market like Merced, investors have an equal number of rewards and risks. There are a lot of great reasons to buy real estate here, and we love working with investors to map out a strategy for profit and long term ROI.
We want you to be aware of the risks, too.
Here’s a brief list of what’s rewarding about investing in Merced and what’s risky about it.
Merced Real Estate Investing Rewards: Strong Rental Market
Let’s talk about some of the rewards to investing in Merced first.
- The local economy is strong, and there are plenty of good reasons for people to live and work in Merced and the surrounding communities.
- Population is growing. More than 5,000 new residents arrived in Merced just between 2020 and 2021.
- Most of the tenant pool is well-qualified. They’re hard workers, looking for a great home, and able to afford the rents that are here.
There’s a diversity to the tenant pool in Merced that creates a lot of opportunity for investors. We have migrant workers and tech professionals. Health care jobs and social service jobs are providing more opportunities and higher salaries.
Rents are also going up. This can be a huge reward for investors, who are able to buy reasonably priced properties in our market and still earn consistent rental income as the average rents rise.
Merced Real Estate Investing Risks: California Rental Laws
Perhaps the main risk for investors in Merced is that legal landscape has changed over the last two years. California has always been a tenant-friendly state, and recent laws have provided additional protections for tenants. When you invest in a property here, you’ll need to have a solid understanding of:
- Fair housing laws. State protections are even stricter than federal protections.
- Section 8 requirements. State law allows Section 8 tenants to use their housing vouchers as income.
- Rent control. Statewide rent control is in place, and you’ll need to know if your investment property is included or exempt in those restrictions.
- Just cause evictions. It has never been easy to evict a tenant in California, and new laws have made it even more difficult.
- Security deposit laws. You’ll need to know how to lawfully collect, hold, and return a tenant’s security deposit or risk a small claims court action.
These laws do not need to scare you away as an investor. As long as you understand them and work hard to comply with them, there isn’t too much risk that you’ll violate them. Mistakes are easy to make, however, and that’s why we recommend you have a
good Merced property management partner on your side when you do invest.
Some Risks are Also Rewards
Not everything is clearly a risk or clearly a reward when it comes to investing in California rental properties.
- Take home values, for example.
Values have risen dramatically in the last few years. That’s a reward, obviously, if you already own a property. You’re going to have an asset that is steadily
increasing in value. That means more money in the short and long term.
It also means that you’re facing a more expensive sales market if you decide to invest now. It’s been a pretty crazy market over the last year, with unusual spikes and strengths. In Merced, home prices have risen but they’re still far more competitive than in other California markets where it’s nearly impossible to find an affordable investment property.
The reward for investors is this: when you’re willing to hold your investment property for the long term, you’ll find you own a property that’s worth significantly more than it was when you bought it. And, you’ll have enjoyed years of tenants paying down your mortgage and covering your property expenses.
There’s a risk that you may be paying more than you want to for a home in the current market. But, that investment will begin making you money immediately. That’s where smart investors find the reward.
- And then there are the tenants
Tenants are both a risk and a reward as well.
What do we mean by that?
Well, the risks are obvious. Even
well-screened tenants are going to be a bit risky. There will be wear and tear on your property. They might accidentally or intentionally cause damage. You could find that they don’t pay rent on time, as you expected. There might be a lot of drama, tenant conflicts, and disputes with neighbors to manage.
But, tenants can be a reward too. Especially a good tenant who communicates openly, notifies you of
maintenance needs when necessary, pays rent on time, and contributes to the care of your property. These tenants earn you money. They’re your customers.
Buy the Right Merced Investment Property
Two things will help you enjoy more rewards than risks when you invest in Merced.
First, buy the right property. You want to think like a tenant and invest in a property that they will find appealing. You’re not buying a home for you to live in yourself. Avoid the fixer-uppers. Sure, they cost less, but it will take some time to get that home renovated and onto the market. Look for homes in good condition that you can rent right away.
Second, invest in
good Merced property management. Your
property manager will manage much of the risk that you take on as an investor, and we’ll also help you reap better rewards.
