Is the San Francisco market too overvalued to make a good return on investment? Check it in Mashvisor’s cash on cash return calculator app.
Mashvisor gathers San Francisco real estate data from multiple top-ranking sources, including Airbnb and ListHop. It allows the tool to give you insights into both long term and short term rental markets in all US cities.
Table of Contents
- Is the San Francisco Real Estate Market a Great Place to Invest in 2023?
- Pros and Cons of Investing in San Francisco
- How to Find the Best Investment Properties in San Francisco Using a Cash on Cash Return Calculator App
- The Top 5 Neighborhoods in San Francisco for Short Term Rentals
In this article, you’ll learn whether San Francisco is a good investment in 2023 and how to calculate cash on cash return on any investment property in San Francisco.
The benefit of using cash on cash return calculator vs Excel is that you don’t need to do research on your own. Mashvisor offers both data on the real estate market and a handy real estate calculator.
The latter lets you put in the figures on any particular rental properties in San Francisco to calculate what the cash on cash return is. The calculator also can estimate most other real estate investing metrics.
Is the San Francisco Real Estate Market a Great Place to Invest in 2023?
The San Francisco market’s been growing significantly that some people say it’s become overvalued. Is it worth investing in 2023, or will the calculator not show good cash on cash return? Let’s find out.
San Francisco Rental Comps
Let’s first look at the available data on the San Francisco rental market. The data is taken from Mashvisor’s rental market overview as of February 2023. The cash on cash return is calculated based on the median price and estimated San Francisco rental earnings.
- Median Property Price: $1,634,009
- Average Price per Square Foot: $1,078
- Days on Market: 56
- Number of Long Term Rental Listings: 506
- Monthly Long Term Rental Income: $4,356
- Long Term Rental Cash on Cash Return: 1.19%
- Long Term Rental Cap Rate: 1.20%
- Price to Rent Ratio: 31
- Number of Short Term Rental Listings: 2,632
- Monthly Short Term Rental Income: $5,356
- Short Term Rental Cash on Cash Return: 1.03%
- Short Term Rental Cap Rate: 1.03%
- Short Term Rental Daily Rate: $227
- Short Term Rental Occupancy Rate: 64%
- Walk Score: 74
On the surface, it doesn’t look that promising for real estate in San Francisco. The median price of more than $1.5 million means that the barrier to entry is quite high, especially now that financing has become less affordable.
The average long term rental cash on cash return (averaging 1.2%) means such an investment won’t provide a good return on investment.
But do the above averages mean that investing in San Francisco real estate market is a bad idea in 2023? Not necessarily.
Related: How Can I Find Rental Comps Near Me?
San Francisco Rental Analysis
One thing to note before we go into more detail is the high barrier to entry to San Francisco real estate market. Even the ones that are on the cheaper side show a median house price fluctuating around a million dollars.
So, it will remain a determining factor, and investors who don’t want to put a sizeable investment in one property won’t be interested in San Francisco.
The price may be offset by home appreciation, though. For the past five years, the San Francisco housing market’s shown consistent year-over-year (YoY) growth between 5% and 11%. Despite the real estate calculator showing lower cash on cash return, you may be getting a return on investment in the form of asset appreciation.
Fluctuations in Home Prices
However, the future doesn’t look perfect for San Francisco investors since, in the early months of 2023, the market’s fallen far beyond the regular annual price fluctuations.
Source: Redfin.com
San Francisco housing prices have shown consistent YoY growth of over 5% but are now at the lowest point in three years.
It is probably due to many residents departing from the city—8% of the San Francisco metro area population is prepared to leave for another city. The post-COVID surge in prices nationwide and inflation that hits large cities the hardest are to blame.
If the prices continue falling, it’s best to wait and make an investment when the home values stabilize. Otherwise, you risk investing more than the house is worth and ruining your cash on cash return.
But don’t expect a fast turnaround. Sales volume is down, along with increasing time on the market in the last six months. It means if you want to flip houses or exit your investment, it may take you a lot longer to liquidate. Only invest if you’re prepared to hold on to your San Francisco properties for a long time.
San Francisco Short Term Rental Prospects
Where the rental market is still strong is short term rentals. San Francisco tourism is recovering, and while it’s not nearly as high as pre-pandemic, it’s showing stable growth. It means the demand for short term rentals is going to be increasing steadily.
The statistics gathered by Mashvisor show that cash on cash return for short term rentals is three times as high as the cash on cash return for long term rentals. The short term renal cash on cash return is around 3%, but only in certain neighborhoods. It makes San Francisco one of the best locations for Airbnb.
Since San Francisco is a very large city with an even larger metropolitan area, the neighborhoods can differ both in price and cash on cash return significantly. If you want to figure out what area of San Francisco you should buy vacation rental property in, take a look at Mashvisor data.
Pros and Cons of Investing in San Francisco
San Francisco might be a good investment in 2023, despite the market slowly falling. But there are some nuances to it. Let’s unpack them in a pros and cons breakdown.
Benefits of Investing in San Francisco
One of the largest benefits of putting your money in a San Francisco apartment is the possibility of property appreciation. For the past couple of years, we’ve seen year-over-year growth approaching 10%. It means that if the trend continues, you’ll get a return on investment even if you run the figures through the calculator and the cash flow is at zero.
But the odds are, the cash flow will be a positive one if you find a good deal on vacation rentals for sale in San Francisco. If you rent out your San Francisco property on Airbnb, you’re looking at an average monthly income of around $5,000. Both the high occupancy rate and the high nightly stay fee help it happen.
Even with higher-than-average mortgage payments and other rental costs, high San Francisco rental returns should cover everything. Running it through the calculator should provide pretty good cash on cash return.
The data gathered by Mashvisor proves the above assertions to be true. Despite the average cash on cash return in the city being closer to 1%, it does go up to as high as 3.5% in some neighborhoods.
When you’re choosing San Francisco investment properties in this densely populated area, you need to find a place that combines lower-than-average prices with a high occupancy rate. The cash on cash return relies heavily on balancing the two factors.
It’s still possible to find such areas in San Francisco despite the post-COVID rise in prices.
Related: 5 Steps to Finding the Best Rental Investment Property for Sale
Drawbacks of Investing in San Francisco
Purchasing a rental property in San Francisco isn’t devoid of drawbacks.
The most obvious one is the high prices in the area. The median price in the city is around $1.6 million. If you put a typical down payment of 20% in a calculator, it would require a $320,000 cash investment. It may not be accessible to many real estate investors, and if you’re looking for a way to start investing in real estate with little money, you may need to look elsewhere.
The high property prices also impact cash on cash return negatively. The nightly stay fees are not vastly different in many San Francisco neighborhoods, but you can pay upwards of half a million dollars more for a prime location. A calculator app would show that cash investment would eat away at your cash on cash return.
But the largest drawback of investing in San Franciso at the moment is uncertainty. The market is at a point where it’s not clear whether it’s going to go up or down.
On the one hand, there are multiple factors that indicate San Francisco is going to be a popular destination and a lucrative real estate market for years to come. The number of tourists is steadily rising and Airbnb occupancy rate and cash on cash return are pretty good.
But on the other hand, the market is now at the lowest point it’s been for several years. It is in line with annual fluctuations of the price, with a peak in August and a low around the beginning of the year. However, average prices are a bit lower than in the past.
Should You Invest in San Francisco?
Will it continue falling, or will it increase again? At the moment, many believe the market to be overvalued, and its home prices may drop by a few percentage points before stabilizing. It means if you invest now, there’s a chance you may lose money in real estate depreciation and not enjoy as high a cash on cash return.
In the long run, though, San Francisco is still a lucrative market. It’s a beautiful location popular among tourists and large businesses, with a very strict construction code that limits supply on the housing market. It is likely to experience a couple of major price increases in the next decade or two.
So, if you’re absolutely set on investing in San Francisco real estate, it’s best to hold off the investment until the prices go down a bit and the calculator shows better cash on cash return.
How to Find the Best Investment Properties in San Francisco Using a Cash on Cash Return Calculator App
In a difficult market such as San Francisco, it’s necessary to take a close look at the real estate comps before you make an investment. Overpaying $300,000 for a house in a place with a low Airbnb occupancy rate will wreck your cash on cash return.
What you need to do before investing is use a cash on cash return calculator app.
A real estate app like Mashvisor provides all the data you may need on housing in San Francisco and lets you access it to draw better conclusions with a calculator. It also offers a cash on cash return calculator app that you can use with your own data to determine the potential cash on cash return for each investment property.
Let’s take a look at how you can use that cash on cash return calculator app to your advantage. Your first step to finding the best investment property with good cash on cash return is browsing Mashvisor’s heatmap.
Do a Quick Search With a Heatmap
The cash on cash return calculator app Mashvisor offers is handy to use with the cash on cash return calculator when you already have your eye on a particular house and can estimate how much it can cost.
If you want to find an area with good cash on cash return in San Francisco, it’s best to browse Mashvisor’s database.
You can browse the existing listings on a map in the app. Choose a heatmap filter and set it to Airbnb cash on cash return. The map will highlight areas with high estimated cash on cash return so you can locate good neighborhoods and look at listings situated in them.
For each listing, Mashvisor gives a rough estimate of what the cash on cash return is going to be. But that’s an estimate based on Mashvisor data. For more accurate results, use a real estate calculator.
Related: How Mashvisor’s Heatmap Can Point You to Low Housing Market Prices
Calculate Profitability
Now that you’ve found a couple of properties that you can invest in, it’s time to use a cash on cash return calculator app. The estimates for cash on cash return given by Mashvisor are based on averages. They can be pretty accurate, but you can make them even more reliable with the said calculator.
Mashvisor’s cash on cash return calculator app lets you enter some of your own data to make the estimates more precise. It mainly includes cash investment since it differs significantly from one house to another.
Depending on the price of the house and the mortgage deal you can get, you may obtain very different cash on cash returns. For instance, a mortgage that requires a 5% down payment may require a higher premium. So, you’re able to invest a lot less from the start but you need a high rental income to generate a positive cash flow.
Also, add the price of renovating the house to the calculator. It can eat away at the cash on cash return as it increases the initial cash investment.
Enter the price of the rental property you’re purchasing and your mortgage downpayment and interest rate, and Mashvisor’s cash on cash return calculator app will give you a better short term cash on cash return rental estimate.
The cash on cash return calculator app pulls market data, such as nightly fees and occupancy rates, from the Mashvisor database so you don’t need to do any research on your own. The result is the best estimate of cash on cash return you can get before investing in a property.
Get a 7-day free trial and use the cash on cash return calculator app, the heatmap, the cap rate calculator, and Mashvisor’s entire collection of real estate tools.
The Top 5 Neighborhoods in San Francisco for Short Term Rentals
For those who are interested in entering the San Francisco rental market in 2023, here’s an overview of the most profitable neighborhoods of the city.
The data is taken from Mashvisor’s February 2023 location report. The information on pricing is taken from ListHub, a database of over six million properties, and short term rental comps are taken by analyzing San Francisco Airbnb properties.
Use the following data to narrow your search for lucrative San Francisco areas or run an estimate in the calculator app.
Here are the five best neighborhoods of San Francisco for investment, arranged from those with the highest to the lowest cash on cash return:
1. Western Addition
- Median Property Price: $978,667
- Average Price per Square Foot: $919
- Number of Short Term Listings: 1,199
- Monthly Short Term Rental Income: $6,471
- Short Term Cash on Cash Return: 3.08%
- Short Term Cap Rate: 3.10%
- Short Term Daily Rate: $251
- Short Term Occupancy Rate: 64%
- Walk Score: 99
Western Addition is a typical San Francisco neighborhood—a walkable area with duplexes and low-rise buildings. It’s pretty close to the Golden Gate Park and San Francisco downtown. The prices for Airbnb properties in San Francisco are among the lowest in the area, just shy of a million dollars.
In terms of cash on cash return, it is the best place to buy rental property in San Francisco.
2. Alamo Square
- Median Property Price: $1,307,508
- Average Price per Square Foot: $951
- Number of Short Term Listings: 1,227
- Monthly Short Term Rental Income: $6,940
- Short Term Cash on Cash Return: 2.73%
- Short Term Cap Rate: 2.74%
- Short Term Daily Rate: $257
- Short Term Occupancy Rate: 64%
- Walk Score: 98
Alamo Square borders Western Addition and is the home of Alamo Park and the Painted Ladies, a row of historical Victorian houses. Houses for sale in San Francisco here are $400,000 more expensive than a couple of blocks down, though. Also, the expected rental income is not high enough to produce a return on par with Western Addition.
3. Mission
- Median Property Price: $1,230,350
- Average Price per Square Foot: $927
- Number of Short Term Listings: 1,051
- Monthly Short Term Rental Income: $6,360
- Short Term Cash on Cash Return: 2.57%
- Short Term Cap Rate: 2.59%
- Short Term Daily Rate: $259
- Short Term Occupancy Rate: 66%
- Walk Score: 99
Mission is probably the district that draws a lot of people to San Francisco. It’s densely packed with historical businesses, artwork, and cultural places.
4. South of Market
- Median Property Price: $979,865
- Average Price per Square Foot: $952
- Number of Short Term Listings: 1,021
- Monthly Short Term Rental Income: $4,802
- Short Term Cash on Cash Return: 2.37%
- Short Term Cap Rate: 2.39%
- Short Term Daily Rate: $230
- Short Term Occupancy Rate: 63%
- Walk Score: 97
The South of Market district, or SoMa, is a mix of low-rise historical buildings and modern architecture. It borders the theater district and Mission Creek. However, the cheaper San Francisco houses for sale on the southern side of the district are less popular with tourists than the historical districts that appear higher on the list.
5. Midtown Terrace
- Median Property Price: $1,487,000
- Average Price per Square Foot: $1,083
- Number of Short Term Listings: 799
- Monthly Short Term Rental Income: $6,698
- Short Term Cash on Cash Return: 2.13%
- Short Term Cap Rate: 2.14%
- Short Term Daily Rate: $232
- Short Term Occupancy Rate: 65%
- Walk Score: 39
Midtown Terrace is a district mostly developed with single family housing that sits on Twin Peaks heights. It’s a bit removed from all the historical and cultural places of San Francisco, though, so it may not enjoy as high tourist traffic.
Use Mashvisor to browse through profitable Airbnb properties for sale in San Francisco and find one to your liking.
Conclusion
San Francisco is quite a challenging market today. It is great in principle but it’s experiencing a downturn. If you don’t want to buy a property that ruins your bottom line, do ample research. Also, make sure to use a cash on cash return calculator app to understand whether a property you chose is going to be profitable.
If you want to give Mashvisor’s cash on cash return calculator app a try, here’s your first step. Schedule a demo now and one of our representatives will walk you through every aspect of using the platform.