Is LA the Perfect Spot for Rental Income Investment?

While the US economy continues its torrid pace, the national trend in home prices marches onward in its own upward spiral. No surprise that in April, Los Angeles California home prices hit an average $580,000. Not too out of the ordinary for any part of the California housing market.

California ranks near the top in all estimates of “hot property” zones and rents in LA are 4th highest in the country.  LA is vast area, and the averages cloak some communities with very high rent rates and selling prices. Check out all the California cities with high rents.

Given the persistence of demand throughout the state, including Los Angeles County, it may be the best bet for rental property investment although not without its risk. However, if you compare LA prices to San Francisco home and rental prices, you might think LA has room to grow.

The Big Decision 2018/2019 — Buy or Rent

Buyers Dilemma in Los Angeles

Rising home and condo prices and rising apartment rents have lot of potential home buyers, mostly Millennials, asking whether it’s better to buy vs rent in LA. With mortgage payments rising faster than house prices, the window for potential buyers to buy a property might be closing.

High Prices Make LA a Hotbed for Rentals

It’s a trend that will see many more people renting a house/condo/apartment in Los Angeles. And with that, demand for rental properties will rise. Buyers from around the world are keenly interested in Los Angeles property, and the competition can get intense.

The California Association of Realtors reported that sales of lower end properties plummeted in April and higher priced homes shot upward. The lower end of the market has dried up, forcing renters to pursue pricier condos or apartments.

Screen Capture courtesy of CAR.org

Is Now a Good Time to Buy?

Is buying rental investment properties a wise choice?  That could depend on how good you are at property searches, current cap rates, how much downpayment you have, and on the outlook for prices in the neighbourhoods you’re considering. Consider carefully how long it will take you to break even.

For homeowners who want to live in the unit, 5 or 6 years is a long time. Check the Zillow payment calculator.

Whether to buy or not might come more from macroeconomic and political factors rather microeconomic elements in the greater LA and California regions.

There’s no doubt homeowners and investors in LA are enjoying their gains in equity the last year or so. This is the 3rd month in a row where prices have risen after a fall/winter of declines. The market came back strong.

Los Angeles Rental Market

If prices are rising, it’s not surprising that sales in the lower end would suffer. It’s an issue of availability, especially of properties with potential. Arbor Loans quoted data from Reis, shows rent growth well above inflation:

“According to data from Reis, the average asking rent for Los Angeles multifamily properties finished Q1 2018 at $1,898/unit, up 0.8% since the end of 2017, and has risen in every quarter since Q2 2010. Year-over-year, rent increased 5.5%, although that growth has begun to slow since peaking in 2015. Rent for Class A properties was up 5.0% year-over-year, while the Class B/C average rose 4.9%. Reis forecasts asking rent in Los Angeles to grow 4.3% during 2018 and slow to 2.2% by 2022.”

The forecast for rising rents, high demand for rental apartments, scarce housing, and a strong economy in central California.

Screen courtesy of CAR.org — Home Prices were up $59,000 from January to February. Current average: $580,000 in April

Buying and Selling in Los Angeles California

If you’re thinking of buying rental properties in LA, check out Rentcafe for rent prices for all apartment types. Review home prices across California.

See rent prices across the US, and trends in rental property investment along with the best cities to buy property.

Bookmark this page, for further data and updates on LA home prices.

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