Two Ways to Make Money From Your Property in the Bay Area
Bay Area real estate isn’t cheap. While that means you’ll have to put more money down and have higher monthly payments than you would in most other cities throughout the U.S., it also means you have a greater opportunity to make money from your property.
There are two major ways to make money from your property in the Bay Area. One: renting the property on a long-term or short-term basis. Two: improving the property and selling it for a profit. Either option you choose, you need to keep some important considerations in mind to maximize your return on investment.
Maximizing the Return on Your Rental Property in San Francisco
The rental market in San Francisco has a lot of promise because rents are so high. In 2020, 52% of all households were renter-occupied, and the average price for a studio apartment was $2,999 per month. The short-term rental market is just as fruitful (if not more), as the average price per night for an Airbnb apartment is $193.
Choosing the Right Kind of Rental Property For the Right Area
If you’re planning on renting your property you need to consider the needs of your potential renters. This goes for long-term and short-term rentals. Time to do a little research.
For long-term rental properties, consider what kinds of properties are in the surrounding areas and what kind of families or individuals are renting them. For example, don’t buy a 1-bedroom condo in a neighborhood of 3-bedroom houses that feed into a great school district. Chances are, people looking in that neighborhood have kids and aren’t interested in renting a 1-bedroom.
You need to have a similar thought process to optimize your short-term rental property. The location of your property will say a lot about your target renters. For example, a property near an urban business district will appeal to people on business trips. This means you will probably see the most success renting either a 1-bedroom to one employee or a 2-bedroom to colleagues. On the other hand, if you buy a property near a tourist attraction like the Golden Gate Bridge, you can cater your rental to couples or families.
Knowing details about your target audience will help you tailor your listing description to their needs, find better renters faster, and improve your occupancy rate.
Maximizing the Resale Value of Your Home in San Francisco
Many real estate investors buy investment properties with the eventual goal of selling them when the market reaches an all-time high. In the interim, they either live in the house or rent it out. Even if you’re not a real estate investor, when you buy a property in the San Francisco Bay Area, you probably will not stay there forever.
The location of your property and the improvements you make play a huge role in how much of a profit you make when you sell your property. Here are a couple things to keep in mind:
Buying a Property in a Great School District
Even if you don’t have kids, you should always buy a property in a top school district. According to the National Bureau of Economic Research, home value is directly related to school expenditure and performance. For every dollar spent on public schools in an area, home values increase an average of $20.
SchoolDigger is a great resource to help you analyze the school district performance in your area. It uses a five-star system to rate schools based on teacher ratios, enrollment, test scores, and other factors. Always cross-reference your address with schools in the area to make sure they are high-performing, otherwise, you could pay the price when it’s time to sell.
Making Strategic Property Improvements
Making property improvements is one of the best ways to increase your resale value, but one wrong or missed improvement opportunity could make tens of thousands of dollars worth of difference when it’s time to sell. Under-improving and over-improving your property are both risks!
Under-improving your property means that you didn’t make the right improvements at the right time to keep your property up to date. At the very least, you don’t want to sell your property with appliances and designs that are 20-years-old. Would you want to buy a property with shag carpet and oak cabinets?
On the other hand, over-improving your property could make it unsellable. If you live in an area where the average home price is $900,000, but you’ve made so many improvements that the sale price to break even is $1.5 million, you’re going to have a hard time finding a buyer. It’s also going to be difficult to find a buyer if you’ve made super personal improvements that the average person cannot use – think building a recording studio in the basement because you’re a musician.
The moral of the story is to think very carefully about improvements before you make them. Getting the highest resale value means striking a balance between expensive and thoughtful property improvements.
Final Thoughts
Real estate is one of the best investments you can make, but you should never buy for the now. Always consider the future of the property and how the value will change with time. If you play your cards right, you can ensure your property value appreciates and you make money whether you decide to rent or sell.
