Market Update – What’s the Single Best Investment in Los Angeles?

How’s the real estate market?

This is the #1 question I get asked and for good reason. 2022 has been a volatile year and many people have strong opinions.

Many flippers and investors have pulled back. (We are still buying!)

Many buyers have been priced out of the market due to the increase in mortgage rates.

Many home owners no longer want to sell because they have a low rate locked in and don’t want to switch their 3% rate for one in the 5’s. 

Seems pretty gloomy, right?

The good news is the increase in mortgage rates has reversed course temporarily. 

Housing statistics are lagging indicators (buying and selling homes takes time…) and months supply is catching up to what we are seeing in the market. Supply is increasing.

In 2021 homes were gone after a weekend on the market with multiple offers. 

Now in August of 2022, months supply has doubled from 2 months to 4 months. 5-6 Months is considered a neutral market and 9 months is a buyer’s market. 

Homes are taking longer to sell, but it’s still a slight seller’s market

Summary: Prices are steady. We are only seeing bidding wars on very few properties. It is much easier for a buyer to purchase a home, just don’t expect a deep discount. The market is shifting towards a balanced market.

Watch the mortgage rates, they are the driver of this market. 

What is the single best investment to a property in Los Angeles?

Have you heard of the 1% rule in real estate investing? For cash flow properties, ideally the monthly rent is 1% of the purchase price. For example a $100,000 home that rents for $1000 a month would be a great cash flow rental.

In Los Angeles, you would be lucky to find a property that rents at .6% of the purchase price. Not even close!

My favorite investment strategy in Los Angeles can get you a 1.5% rents of the cash invested.

Sounds good?

My favorite value add strategy in Los Angeles is adding an Additional Dwelling Unit (ADU) to a single family or multifamily property. An ADU is a guest house that is under 1200 square feet. 

A basic 2 car garage ADU conversion starts around $120,000 and in LA you can generally rent it out for $1500. 

$1500 x 12 = $18,000 a year for a basic long term rental. Are you willing to do furnished 30 day rentals? You can get $3000+ per month. Make sure you factor in the higher vacancy, expenses, etc. 

The average 2 car garage is 360 square feet, if you can get $800 a square foot, that’s also $288,000 in value you have added to your home!

California is pushing ADUs HARD, bills SB13, AB670, AB68 & AB881 all expand a homeowners ability to add an ADU and reduce a local jurisdictions ability to restrict building ADUs

Questions? Feel free to shoot me a text at 424-239-5209.

Sources:

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