Investing in real estate is among the best ways to generate wealth in Los Angeles County. However, it is not an instant road to riches. The trick lies in doing your homework and implementing proven techniques to elevate your return on investment. With that in mind, read on to learn top ways to get the most out of the LA real estate market.
Learn Top 10 Ways To Get The Most Out Of The LA Real Estate Market
1. Pick Your Market Wisely
One of the most important lessons you will learn when venturing into Los Angeles real estate is choosing the right market and time to invest. It does not always make economic sense to tap into a nearby market as it may lack what it takes to generate reasonable profits. Still, you will want to avoid hot markets as you risk buying properties high and selling low.
Generally, the key is investing in a great neighborhood with a high demand for housing, profitable investment opportunities, and room to grow your business.
It is best to avoid an area that is dependent on a single source of livelihood. There is a likelihood the industry may collapse, leading to massive job losses, high vacancy rates, and the eventual decline in real estate prices.
2. Take into Account the Financials
When venturing into the Los Angeles real estate market, you are dealing with numbers. Among these numbers are the upfront costs. You do not just pay the property price and real estate agent fees; you must take care of other expenses such as utility, insurance, and closing costs.
Additionally, you will need to pay for the necessary renovations to improve the property's condition and value. Potential refurbishments include electrical, plumbing, and structural repairs.
Avoid performing repairs on your own unless you are exemplary skilled in the fields. However, you want to concentrate on the core matters of your business. And in that regard, hire competent local contractors to handle any improvements.
3. Learn the Market of Your Choice
Having picked the right housing market in Los Angeles, be quick to learn more about it to avoid future problems. Conducting thorough research on a particular investment location help project market's future. Some of the characteristics to watch out for include:
- Property costs, rental prices, sell-to-rent ratio, and price per square foot
- The housing market's appreciation rates over the past 7-10 years
- Current real estate market trends, including mortgage rate, economic growth, and population growth
- Tenant occupancy and vacancy rates, and more
Also, see that your renovations appeal to your target clients. For instance, it does not make sense to reduce the number of bedrooms in a family-friendly community or adding a pool where residents won't appreciate it.
The Los Angeles housing market offers some of the best long-term investment opportunities in the country. In the last ten years, LA recorded a 94.1% appreciation rate, representing an annual appreciation rate of about 6.9%.
According to Realtor.com, the county's median list price was $950k in September 2020, up 5.7% from last year. The value is projected to increase by 7.5% within the next year. The median sale price and median price/ square foot presently stand at $850k and $552, respectively.
Large apartment complexes are the most prevalent housing units in LA, accounting for about 46.73%, while single-family detached homes follow at 38.21%. Small apartments and row houses occupy the remaining portion.
4. Buy Low Sell High
Buying income property when it is at the bottom of the real estate market cycle and selling it when it is at the top of the market cycle is a top way of generating real wealth in LA. The secret to cracking this strategy, however, lies in being conversant with the real estate cycle comprised of the following stages:
- Early downturn
- Full downturn
- Bottom
- Early recovery
- Early stable
- Late stable
Understand that different housing markets in Los Angeles are in different stages of the cycle at any single time. Still, asset types within one market can be in different stages. For instance, when multi-family units are at the bottom stage, single-family units may be in the late stage.
5. Harness the Hidden Market
The hidden market refers to the distressed yet unlisted properties. They offer you the opportunity to purchase properties below the market value.
Among the circumstances that can lead to a distressed home for sale in LA is a single homeowner's death. The relatives may not want to bear a vacant property's burden, thus putting it up for sale. Divorcing or separating couples or relocating families can be motivated to sell their homes quickly. These are the kind of sellers to focus on when venturing into the LA housing market.
Whereas foreclosure auctions can generate fantastic deals for LA real estate investors, you may land properties in dire need of repairs and improvement. This may limit the property's profitability.
6. Make Economically Sensible Renovations
Trying to build the best property in an area is a sure way of losing money in real estate investment. Do not be tempted to remodel homes into luxury options in a middle-class area. You will spend an incredible amount of money on improvement but, unfortunately, land zero sales.
Instead, give your properties the best-in-class touches. First, have professionals perform necessary repairs. Then make outstanding but affordable additions. For instance, using two-tone paint rather than single color paint and installing more convenient trash receptacles and soap dispensers. But you will want to avoid luxuries like costly decors, state-of-the-art appliances, and granite countertops.
7. Negate Real Estate Investment Risks
There are multiple ways to avoid risks and money loss in real estate investment. Do not be quick to grab a property without analyzing its risks. If you cannot handle the risks, invest in a different option.
Avoid too much debt and always look to put at least a 10% down payment on a property for sale. However, having 20% equity in the property helps you avoid private mortgage insurance and get lower interests on loans.
You do not want to keep running to lenders whenever unforeseen expenses crop up. Maintain a large cash reserve to take care of unexpected fixes. This way, you mitigate the risk of selling your home fast or paying huge interest on loans.
8. Understand and Follow Housing Rules and Regulations
The need to learn and observe federal and state housing rules cannot be underscored enough. You avoid hefty penalties and the untimely end of your business. Distinguish between prohibited activities and actions that require a permit from local authorities. For example, do not convert that basement into a rental space without knowing whether the county allows it.
9. Optimize Property Value
Add value to your property to earn more profits. Brighten and revive tired spaces with a fresh coat of paint. Or de-clutter spaces and give each of them a function. For example, you can rent that space at the corner to a local bank to install an ATM.
Value-added services, such as picking trash from tenants' doorsteps to the dumpster for a reasonable monthly fee and hiring a security guard, are additional tricks to increase your rental prices.
10. Don't Ignore Non-Conventional Real Estate Options.
Today, real estate investment in Los Angeles is not all about apartments and single-family homes. Leverage non-traditional options such as warehouses, industrial space, storage units, and office buildings to increase your rental income. You can negotiate triple net leases with your industrial space and office building tenants to reduce your out-of-pocket expenses by leaving the tenants to take care of property maintenance, insurance, and taxes.
Invest in LA Real Estate Market with the Help of Professionals
Now that you know the tricks of cracking the Los Angeles housing market, it is time you set the ball rolling. To learn more about the market or get reliable guidance on your investment options, contact Casey Gordon and his LA real estate experts team at 805-750-9804 for immediate assistance.