As home prices increase in California, so does rental demand. Learn how buying a duplex for sale in Los Angeles can boost your portfolio.
When talking about California investment properties for sale, most people would think about single-family homes and apartments. But there are other options, too, such as duplexes.
A duplex is a building that is composed of two residences that share a common central wall. They each have separate entrances and their own living room, dining room, kitchen, bathrooms, and bedrooms. Each unit often has the same features as the other. A duplex can either be a single story or a two-story. If possible, you would want to invest in a two-story duplex in the California real estate market.
In this article, you will learn all about investing in a duplex for sale in Los Angeles County, which will cover:
- Pros and cons of investing in a duplex
- How to find a profitable duplex for sale in Los Angeles
- Top 5 neighborhoods in the Los Angeles real estate market for traditional and Airbnb rental properties
- Airbnb laws in Los Angeles
If you are a first-time investor who wants to enter the Los Angeles rental market, keep reading.
Read: 12 Best Places to Invest in California in 2021
Pros and Cons of Investing in a Duplex for Sale in Los Angeles
While investing in this property may sound intriguing, here are some pros and cons that you should know about before searching for a duplex for sale in California:
Pros of Investing in a Duplex
Pro: It Is a Great Starter Investment for Beginners
If you are a beginner investor who would also like to live in a property that you own, a duplex for sale in Los Angeles County can help you reach your goals. You can live in one unit then rent out the other, or try house hacking and rent out the bedrooms to different tenants.
Your rental income can help pay for the mortgage or even enable you to make extra payments to clear your loan sooner. If you are able to buy a duplex with cash, though, then the rent can add to your monthly income.
Pro: You Are in Close Proximity to Your Rental Investment
When you are a landlord, you will have to address your tenants’ issues. But since you are buying a Los Angeles duplex for sale and living in it, you do not have to drive from your primary residence to the rental property to resolve the situation. You will also save on costs because you do not have to hire a property manager, which is not sustainable anyway if this is your only investment at the moment.
Having first-hand knowledge of what is going on with your tenant or Los Angeles investment property will help you deal with any issues more efficiently as well.
Pro: Repairing a Duplex Can Provide Tax Benefits
According to NOLO, home improvements are not necessarily tax-deductible, but they can provide tax benefits. Investors who buy duplex homes for sale in Los Angeles and repair them will be able to depreciate the costs as a rental expense. This amount will then be deducted from the rental income you receive, and the resulting difference will be the only taxable amount.
You can also deduct your mortgage interest payment and accrued credit card interest for any home improvement expense you paid with your card.
Pro: You Will Have Access to Multi-Family Financing Options
If you cannot afford to buy a duplex for sale in Los Angeles, CA with cash, you can find a lot of lending products out there that are specific to multi-family dwellings. There are many private lenders who will not look at your creditworthiness, but their interest rates and repayment terms may be steep.
But if you are buying a duplex that you plan to live in, the Federal Housing Administration (FHA) loan could be a great choice for you. They offer competitive interest rates and lower down payments, and they are also more forgiving of lower credit scores. They do require that you live on your Los Angeles rental property for at least one year, though.
Still, when you are able to build equity and earn rental income while paying a reasonable mortgage, you may be able to save up enough capital to acquire a second investment property.
Cons of Investing in a Duplex
Con: You Have to Be Comfortable With Being a Landlord or a Host
Having a Los Angeles income property is less like passively investing and more like running a small business. First, you have to market your property to attract tenants or get bookings. You might even have to give them a tour of the place. Dealing with paperwork is part of the business as well. You will have to approve rental applications, create and sign lease agreements, and make sure to document everything.
During tax season, you must file a profit-and-loss statement that includes all of your deductions with categorized receipts. If filing taxes is not your forte, hiring an experienced accountant will help ease your burden.
Con: You Have to Find the Right Tenant
Living in a duplex allows you to have your own living space while you rent out the other unit. But you will still have to put up with your next-door neighbors who also happen to be your tenants. You are lucky if you found someone who is both a good tenant and a good neighbor. But what if you end up with a problematic one?
Con: You Will Have to Deal With Maintenance on Both Units
Before listing the unit for rent, you must first ensure that the house is attractive for prospective tenants or guests. And even if you already have someone renting the place, you need to maintain the upkeep of their living space so they will continue to rent from you.
Also, as a landlord, expect late-night calls from your tenants. If a pipe bursts or the heating/cooling system breaks in their unit, you will have to handle the repairs. Hiring a property manager to deal with these issues can help, but if this is your first rental property and you have yet to turn a profit, this may not be sustainable for you at the moment.
Rental Income Is Not Guaranteed
The expression, “Build it and they will come,” does not automatically apply to duplexes. Not everyone wants to be a tenant when living in Los Angeles. If they can afford to buy a Los Angeles duplex for sale, they most likely would do that. Not all neighborhoods are great for tourists or business travelers, either.
Before purchasing a duplex, you need to analyze the California housing market to make sure that the property you wish to buy has the income potential you are looking for. You also have to market your property well: invest in good photos, list your property on as many platforms as possible, and keep your response rate high.
How to Find a Profitable Investment Duplex for Sale in Los Angeles
There are two main steps to finding duplex homes for sale in Los Angeles. First, you have to find a neighborhood that is optimal for your rental strategy. Then, you must look for a duplex for sale in that area.
How to Find a Neighborhood Where to Buy Your Rental Duplex
Location has always been key to valuable real estate, and it remains true today. Because while you can always remodel a house or even demolish and rebuild it, you cannot change the location of the land that you own.
Because of this, the neighborhood is the most important driving force behind the value of your property. So you need to consider the accessibility, appearance, and amenities of an area.
- Is it near any offices that would make it a desirable location for employees or for business travelers?
- Does the neighborhood look well-kept and attractive to your target market?
- What amenities does the neighborhood have? Are they also well-maintained?
Neighborhood Analysis Metrics That Investors Need to Know
As a real estate investor, you must also run a real estate market analysis and look at the following metrics that indicate whether the properties in that neighborhood are lucrative as rentals:
- Cash on cash return: This is the ratio of your net operating income (NOI) to the total cash investment. If you are buying a duplex for sale in Los Angeles with financing, for example, this metric is important for you. By dividing your NOI for the year by how much you paid toward your mortgage for that same period, you will get your cash on cash return. Ideally, you would want to get at least 2% for this metric.
- Cap rate: This is the ratio of your NOI to the market value of your property. Unlike cash on cash return, this metric does not factor in whether you paid for the duplex in cash or with financing. A 2% cap rate or higher indicates that you will turn a profit with that particular property.
- Price to rent ratio: You get this number when you divide the average annual rental income by the average property price in that area. If the ratio is low (15 or lower), then the property prices are lower compared to the average rent, making it more likely for people to buy their own house instead of renting. A duplex for sale in Los Angeles, CA, usually has a high price to rent ratio.
- Occupancy rate: If you plan to list your property as a short-term rental like Airbnb, then the occupancy rate is another crucial metric you need to look into. This is the number of days when a property is booked divided by the number of days it is available for booking. Because you are investing in Los Angeles, you would want to buy a property in a location with at least a 50% occupancy rate to cover your expenses.
Using Mashvisor to Do A Comparative Analysis
These metrics sound daunting to analyze, but thankfully there are online tools like Mashvisor that do the calculations for you. Simply type in the city (“Los Angeles, CA”) or neighborhood that you want to research, then click on a neighborhood, and you will find our analysis on the property that includes the metrics mentioned above. These are updated in real-time to ensure the accuracy of our calculations. Sign up for Mashvisor now and get 15% off.
How to Find a Duplex for Sale in Los Angeles
Even though Los Angeles has plenty of duplexes that were built in the 1920s and 1930s, many of them have already been bought by other investors. You will still find them for sale, but it is rare to find a bargain these days.
You can start your search by using the following terms on your preferred search engine:
- Duplex for sale in South Los Angeles
- Duplex for sale in East Los Angeles
- Duplex for sale in West Los Angeles
- Duplex homes for sale in Los Angeles County
- Duplex homes for sale in Los Angeles, CA
- Duplex houses for sale in Los Angeles, CA
- Duplex for sale in Los Angeles, California
- Duplex apartments for sale in Los Angeles
When evaluating a property, look at the lot’s proximity. If it is near amenities such as a park, it will be more desirable to prospective tenants and guests. But if it is close to things like busy roadways and community centers, you might struggle to find a good tenant or book a guest. The lot size also trumps the quality of the duplex because land often increases in value. You will also have more space for renovations, remodeling, or even demolishing and rebuilding.
Using Mashvisor to Search for a Duplex for Sale
For an efficient search, you can also use Mashvisor to look for a duplex for sale in California. On our Property Search page, click “More filters” then check “Multi Family” under the Property Type filter. This will narrow down your search to duplexes and other multi-family homes. When you click on a property, you will be directed to its page, which displays the following:
- Property details like the house’s street address, listing price, number of bedrooms and bathrooms, square footage, description, and other characteristics;
- Investment property analysis, which includes the estimated rental income, rent-related expenses, cash flow, cash on cash return, and cap rate;
- Investment property calculator, which gives you a more accurate estimate of the projected costs and expenses based on your rental strategy and the numbers you input for the income and costs;
- Mortgage calculator, which helps the investment calculator with its estimates based on the details you provided about your mortgage; and,
- Investment payback balance, which gives a summarized breakdown of the income and expenses for the next 10 years; the numbers displayed are based on the values you input in the investment calculator.
The numbers provided by our analytics features are based on actual rental comps’ data in the neighborhood to give you an idea of whether the area is attracting tenants and guests. Start out your 7-day free trial with Mashvisor now and access data about real estate comps in your location of interest.
Top 5 Neighborhoods in Los Angeles for Traditional and Airbnb Rentals
If you need help in finding a good neighborhood to start your search, here are five communities that you might want to look at:
Harvard Heights
- Optimal Rental Strategy: Traditional
- Traditional Rental Income: $5,153
- Traditional Cash on Cash Return: 2.22%
- Price to Rent Ratio: 23 (high)
- Median Property Price: $1,404,823
- Average Price per Square Foot: $611
- Days on Market: 198
- Walk Score: 93
Downtown LA
- Optimal Rental Strategy: Traditional
- Traditional Rental Income: $3,002
- Traditional Cash on Cash Return: 2.15%
- Price to Rent Ratio: 23 (high)
- Median Property Price: $824,386
- Average Price per Square Foot: $783
- Days on Market: 111
- Walk Score: 97
Pico-Union
- Optimal Rental Strategy: Traditional
- Traditional Rental Income: $4,588
- Traditional Cash on Cash Return: 2.10%
- Price to Rent Ratio: 24 (high)
- Median Property Price: $1,320,851
- Average Price per Square Foot: $821
- Days on Market: 164
- Walk Score: 89
Playa Del Rey
- Optimal Rental Strategy: Airbnb
- Airbnb Rental Income: $6,294
- Airbnb Cash on Cash Return: 2.01%
- Airbnb Daily Rate: $355
- Airbnb Occupancy Rate: 54%
- Median Property Price: $1,601,029
- Average Price per Square Foot: $836
- Days on Market: 77
- Walk Score: 38
South Carthay
- Optimal Rental Strategy: Airbnb
- Airbnb Rental Income: $6,040
- Airbnb Cash on Cash Return: 1.83%
- Airbnb Daily Rate: $183
- Airbnb Occupancy Rate: 73%
- Median Property Price: $1,537,857
- Average Price per Square Foot: $867
- Days on Market: 38
- Walk Score: 84
Note: The numbers shown above are based on the real estate data we collected in December 2021. For more up-to-date analyses and access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.
Is Airbnb Legal in Los Angeles?
As of July 2019, Home-Sharing Ordinance permits short-term rentals or home-sharing in Los Angeles if your listing is your primary residence. Airbnb hosts are also required to register with the city and post their permit number on their Los Angeles Airbnb investment’s online listing. Registration costs $89 and must be renewed once a year. If you do not do any of these and someone reports you to the city government, you will be permanently barred from hosting short-term stays in Los Angeles.
This is where buying a California duplex for sale is an advantage for aspiring Airbnb hosts. You can list the duplex as your primary residence as long as you live in one unit of the duplex. So renting out the other unit on Airbnb and other short-term rental platforms will still comply with the ordinance.
Conclusion
Investing in a duplex for sale in Los Angeles is low risk compared to other properties, and here is a recap of the benefits you can get:
- Ability to live in one unit and rent out the other;
- Close proximity to your rental property;
- Tax benefits when repairing and remodeling your duplex; and,
- Access to multi-family financing options.
Of course, there are downsides to this as well, namely:
- Being a landlord is a full-time job;
- A bad tenant can cause you a lot of stress and trouble;
- You are in charge of the property’s maintenance, even when you already have a tenant; and,
- A duplex does not guarantee rental income; you have to work to attract tenants and guests.
When looking for a profitable duplex for sale in Los Angeles, you must first decide on which neighborhood to search. Online tools like Mashvisor can give you a neighborhood analysis based on the performance of rental properties in those areas. Then once you have narrowed down your search, finding a profitable duplex should be easier. Mashvisor can also help you estimate your rental income on a particular property when you use our Investment Calculator.
If you need ideas on which neighborhoods to look into, start with these:
- Harvard Heights
- Downtown LA
- Pico-Union
- Playa Del Rey
- South Carthay
You can read above on their rental income potential and optimal rental strategy. But if you want to start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here to use our property search and analytics features.