Wait, isn’t everyone meant to be leaving California? So why is the Golden State racking up new investors?
What’s more, these investors aren’t Wall Street heavy hitters with bottomless pockets but mom-and-pop types—albeit with more money than most—looking for a safe haven to put their cash. Much of the buying recently has been centered in San Luis Obispo County, centrally located between Los Angeles and San Francisco, pushing the coastal enclave into the third-hottest investment area for single-family homes in the state, according to aggregator BatchData, as reported by local newspaper the Tribune.
The area’s strike rate is impressive, with investors making a mighty 7,454 purchases last year. With median house prices in the area regularly hitting $1 million, there’s been a lot of cash flying around the county.
A Different Type of Californian Investor
What’s different about the area’s uptick in investors, the Tribune reports, is that smaller investors have been the main drivers of home purchases, as just 14% of San Luis Obispo County residents can actually afford a median-priced home there. As homes sell for market value, Wall Street types have been steering clear.
San Luis Obispo Coastal Association of Realtors president Tim Townley told the Tribune in an email:
“In our market, many homes sell close to their asking price. That type of environment is typically less attractive to large-scale investors who often focus on markets where they can buy at deeper discounts. Big investors like Blackstone have much more residential rental investment in areas like L.A. and the Bay Area…We just don’t have the inventory of distressed properties that the big guys feed on.”
Long-Term Dividends Rather Than Short-Term Cash Flow
The SLO investor buying activity represents a demographic of landlords who aren’t looking to stack doors and gauge out as much cash flow from their rentals as possible, but rather deep-pocketed buyers looking for a safe place to park their cash and reap long-term rewards while benefiting from tax benefits in the short term.
“Most home purchases in SLO County are still being made by individuals,” Townley said. “That includes people relocating to the area, Cal Poly-related buyers such as parents purchasing for students, and local residents who are moving within the county as their housing needs change.”
Investment in the area has gone hand in hand with its cities creating a welcoming business environment while upgrading communal areas.
With a population of 30,000, the city of Atascadero is the county’s main commercial hub. Mayor Charles Bourbeau said on the city website:
“Atascadero is transforming. The city is financially stable and well-managed, as underscored by recent bond ratings. Additionally, we have invested millions to enhance the downtown area with ample free parking and to improve roads and public facilities across the community. The city council is stable, consistently welcoming to investment, and committed to policies that make Atascadero an easy place to do business.”
Mom-and-Pop Buyers Own 91% of the Homes in California
A massive 19% of California real estate is owned by investors, according to BatchData, which was analyzed by the Orange County Register. In San Bernardino County, it is 27%, and in Riverside, 19%. That number jumps to a staggering 83% in the mountain regions.
The aggregator found that 91% of the investment homes in California are owned by mom-and-pop investors with fewer than five homes. The rampant investor activity in California is also the reason it’s experiencing an affordability crisis for owner-occupants.
Investing in California: A Double-Edged Sword
High prices and insurance hassles
Investing in California real estate is a double-edged sword. Because of the high cost of housing and the large number of investors buying single-family homes, affordability is a major issue for the average earner in the state, exacerbated around its major cities. From an investor’s point of view, that means parking cash, not primarily for cash flow but for stability and appreciation in a high-priced market.
California’s supply shortage has been a flashpoint of debate between the NIMBYs and YIMBYs, with well-off towns and small cities resistant to any type of residential development other than single-family housing. That started to change with the passage of Senate Bill 9 in 2022, which allowed two to four units to be built across single-family lots in California without local approval.
Now, other California cities, such as San Francisco, are also changing their zoning laws to allow low- and middle-income residents. However, one of the real problems for anyone thinking of investing in California is the cost of insurance. It eats up cash flow like a wildfire eats up dry wood, which is why it’s so expensive.
The good news for owners is that, following the exodus after last year’s wildfires, five major insurers have committed to staying in the state.
Enduring Demand: The World’s Fourth-Largest Economy
On the positive side, one of the state’s biggest calling cards is its enduring demand. It is an economic powerhouse, and despite the naysayers, it remains the fourth-largest economy in the world, with a GDP of $4.1 trillion, according to The Globalist, which cited several sources in its reporting.
Los Angeles, San Diego, San Francisco, and Orange counties have relatively low investor ownership but represent some of the most in-demand rental markets in the country, thanks to education, healthcare, tech, entertainment, logistics, and tourism, which keep an unwavering demand. Should the recent drop in interest rates continue, it will be an even more popular place for long-term investors.
Final Thoughts
Investing in California is not for everyone. Homes in the state cost twice the national median. It goes against the often-preferred investment strategies of low barriers to entry and high cash flow.
However, if you have cash on the sidelines or an abundance of equity, can handle the insurance headache, and are tired of dealing with the grind of owning high-maintenance rentals, plonking down cash in California real estate is a proven long-term winner.
Granted, given the cost of housing, California is not the place to be highly leveraged. It is, however, the place to watch your equity soar amid high demand for housing. Zillow data shows that many cities in the state are expected to increase substantially in value in 2026, unlike the rest of the nation. Just make sure your insurance is rock solid.
Discussion about this post