The Los Angeles real estate market continues to be one of the hottest in the United States in 2022. But will it still be as hot in 2023?
Before you go out looking for Los Angeles houses for sale, you first need to know the current market conditions and the experts’ forecasts and predictions for the Los Angeles real estate market.
Table of Contents
- Why Invest In Los Angeles Real Estate?
- The Los Angeles Real Estate Market Forecast for 2023
- Top 5 Los Angeles Neighborhoods for Long Term Rental Investment in 2023
- Should You Invest in Airbnb Properties for Sale in Los Angeles in 2023?
An endless number of real estate investors, both international and domestic, consider California as one of the most profitable US housing markets in 2023. Of course, there is an explanation behind it.
The climate in the State of California is warm throughout the whole year, attracting in-migrants and tourists from all over the country. Additionally, the state is well known for its recreational and leisure activities, as well as the business opportunities it offers.
When talking about the California real estate market, however, there is no way to skip over one of the most popular and most well-developed cities in the state: Los Angeles.
The 2023 Los Angeles real estate housing market is one of the most rapidly growing and expanding markets at the moment. As such, this blog will shed some light on the Los Angeles housing market and investigate whether purchasing a Los Angeles real estate investment is a good business opportunity.
Why Invest in Los Angeles Real Estate?
There are several great reasons to invest in real estate in general. And if we’re talking about a popular location like Los Angeles, one cannot help but think that investing in real estate in LA is financially rewarding. It may be true in some aspects, but before you jump to conclusions, you need to work on your Los Angeles real estate market analysis first.
The Los Angeles real estate market is extremely popular because it is the center of the US film and television industry. As you can probably imagine, career opportunities of such kind bring a significant amount of people to LA.
Besides Hollywood, the city offers many other business opportunities and job openings. The latter works in extreme favor of an investor who owns and manages a long term Los Angeles investment property. That’s because where there are jobs, there is typically population growth. It can mean plenty of tenants for rental properties.
Certainly, the short term rentals in the city do not fall behind. An infinite number of fun and leisurely activities attract hordes of tourists yearly. Business travelers are also common occupants of Airbnb properties, which may seem like an ideal business to get into.
However, Los Angeles’s strict short term rental regulations significantly impact the short term real estate investing business in LA.
For this reason, when you decide to invest in Los Angeles real estate, make sure you take into consideration all the potential rules and regulations as well. You also need to factor in Los Angeles real estate market trends, as well as forecasts and predictions, in order to operate your business successfully.
Los Angeles by the Numbers
Before we go any further, let’s examine what the numbers look like for real estate investors like you. The below numbers from Mashvisor’s January 2023 database reflect the actual market conditions for Los Angeles real estate.
- Median Property Price: $1,180,060
- Average Price per Square Foot: $1,976
- Days on Market: 92
- Number of Long Term Rental Listings: 9,184
- Monthly Long Term Rental Income: $4,481
- Long Term Rental Cash on Cash Return: 2.80%
- Long Term Rental Cap Rate: 2.82%
- Price to Rent Ratio: 22
- Number of Short Term Rental Listings: 8,255
- Monthly Short Term Rental Income: $4,144
- Short Term Rental Cash on Cash Return: 1.86%
- Short Term Rental Cap Rate: 1.87%
- Short Term Rental Daily Rate: $226
- Short Term Rental Occupancy Rate: 50
- Walk Score: 57
Mashvisor’s Heatmap displaying which parts of the Los Angeles real estate market have high and low long term rental cash on cash returns.
That being said, let’s take a look at some of the advantages of investing in rental properties in Los Angeles real estate market.
It Has a Strong Rental Market
Because Los Angeles is such a popular destination, it‘s consistently been one of the top rental markets in the country for years.
All the different attractions that LA offers continually bring in an influx of potential renters for both long and short term rental properties. It doesn’t matter if they’re located in Downtown Los Angeles or near the suburbs, people will come to them.
One thing to also note is LA’s very strong market for long term investments. According to Norada Real Estate’s 2023 LA rental market trends forecasts and predictions, the current rental for a one-bedroom apartment in the Los Angeles real estate market is $2,395. That is already a year-over-year increase of 8%.
Generally, predictions like this are based on different trends and projections of actual real estate market data and statistics.
Its Economy Is Continually Growing
Another reason why you should consider investing in real estate in Los Angeles is its booming economy.
As the capital of the US entertainment industry, Los Angeles continues to attract all sorts of investors from different industries. Because investors keep coming in, they bring along with them job opportunities that boost LA’s economy into what it is today.
Los Angeles’ unemployment rate went down to 4.50% in December 2022 from 5.70% the previous year. All industries in Los Angeles County reported a 3.2% year-over-year job growth rate in December 2022 from the same period a year earlier, according to an Employment Development Department of California report.
The strong economy and its potential for further growth are some of the reasons why people keep coming in droves to LA to live and work there. More people means more potential tenants. More tenants mean more money to take to the bank as long as you employ the right strategies.
It Has a Thriving Real Estate Industry
Los Angeles’ real estate industry is a very competitive market. Median property prices might be a little higher than most can afford but if you are able to spot a good deal in an investment-worthy neighborhood, you got a good thing going for you.
The important thing is that you don’t just rely on forecasts and predictions but perform your due diligence before buying any Los Angeles investment property.
The Los Angeles Real Estate Market Forecast for 2023
Many people are questioning where to invest in real estate this year. Is it worth it to put a down payment for investment property in the City of Angels? Well, in order to answer that question, it is necessary to explore the Los Angeles housing market forecast for 2023.
1. Prices of Los Angeles Properties to Increase at a Moderate Pace
The prices of Los Angeles houses for sale went down slightly over the past couple of years. Sellers lowered their listing prices in 2022, which turned LA into a buyers’ market. Current property prices may not be that low. However, since the LA housing market now favors buyers, you may want to think about the pros and cons of investing in LA.
The 2023 Los Angeles real estate market will experience an increase in the median home value over the year. According to Norada Real Estate, home prices in LA are most likely to increase, albeit at a moderate rate.
Even though the Los Angeles real estate market still seems to be on the expensive side, Zillow reports a difference greater than $50,000 in listing prices and prices at which properties are actually sold.
Although the median property price is high, you can still find relatively more affordable neighborhoods, like the ones listed below for investing in long term rentals in the Los Angeles housing market. The said locations offer higher cash on cash returns, as well.
2. Higher Mortgages Will Slow Down Buyer Demand and Home Appreciation
Housing supply and buyer demand are known to be tight in LA. However, mortgage rates remain high now (6.11% on a 30-year fixed according to Bankrate), with no signs of slowing down any time soon. The high mortgage rates are expected to discourage buyers from taking advantage of slower property price increases.
Zillow predicts a drop of 4.7% in home sales from December 2022 to December 2023. The prediction is based on statistics, as well as current market and economic conditions. If we look at the market trends and consider the rate of inflation today, Zillow might not be far off with its forecast.
However, if the market trends and consumer behavior start behaving differently, it’ll be a different story. But for the time being, because of the present global economic climate, buyers and investors are holding out for the opportune time to buy a property in LA.
It is why it’s important for investors to keep their eyes peeled for market trends and research actual market conditions first before buying any property in public listings and off market.
But before we get any further into data and statistics on where to invest in real estate for long term rental properties, let’s review some key Los Angeles real estate market trends. The trends relate to short term rentals, namely, the short term rental regulations.
3. Short Term Rentals in the LA Housing Market 2023
As most of you already know, short term rentals are extremely profitable in general. However, with the short term property regulations in the Los Angeles real estate market, investors might face challenges.
So, without further ado, here are the main restrictions that will influence Airbnb, Vrbo, and other short term rental properties in the Los Angeles real estate market.
The first and major factor is hosts will only be able to rent out a primary residence. So, buying Los Angeles houses for sale to use them as second homes or vacation rental properties will no longer be permitted. Also, temporary or non-residential structures cannot be rented out on Airbnb.
Even local hosts will only be able to sublet their Los Angeles investment properties for a period of 120 days annually unless they get special permission and pay higher taxes. If you wish to apply for extended home-sharing privileges, it will cost you about $850.
With the above Airbnb regulations, it’s wiser for you to stick to the long term rental strategy. Let’s take a look at the best places to invest in Los Angeles for long term rentals.
Top 5 Los Angeles Neighborhoods for Long Term Rental Investment in 2023
A long term Los Angeles investment property is not any less successful than a short term rental. Actually, there are many profitable long term properties in the Los Angeles real estate market that make money and bring profit to their owners.
But before you go looking for any off market properties in Downtown LA or for beachfront properties, you need to first understand that each neighborhood comes with its own benefits and drawbacks. Trends and market behavior tend to heavily influence each neighborhood’s real estate market performance.
For this reason, we took a look at not only the trends but actual data from the real estate platform Mashvisor to see which Los Angeles neighborhoods make for the best spots for long term rentals.
We came up with five top locations that will give you a good return on investment. The five markets were identified by using the following criteria:
- Each neighborhood should have at least 100 active listings on the long term rental market.
- Each neighborhood must have an average monthly rental income of $2,000 and up.
- Each neighborhood must have no less than 2% in cash on cash return.
- Each neighborhood should have a price to rent ratio of 20 and above.
Based on the above criteria, we present to you the five neighborhoods with such properties ranked in order of the most to the least cash on cash return:
1. Chinatown
- Median Property Price: $1,072,900
- Average Price per Square Foot: $682
- Days on Market: 83
- Monthly Long Term Rental Income: $4,527
- Long Term Rental Cash on Cash Return: 2.79%
- Long Term Rental Cap Rate: 2.81%
- Price to Rent Ratio: 20
- Walk Score: 96
2. Mid City
- Median Property Price: $1,418,851
- Average Price per Square Foot: $739
- Days on Market: 131
- Monthly Long Term Rental Income: $5,205
- Long Term Rental Cash on Cash Return: 2.35%
- Long Term Rental Cap Rate: 2.36%
- Price to Rent Ratio: 23
- Walk Score: 83
3. Aliso Village
- Median Property Price: $993,880
- Average Price per Square Foot: $654
- Days on Market: 145
- Monthly Long Term Rental Income: $3,525
- Long Term Rental Cash on Cash Return: 2.32%
- Long Term Rental Cap Rate: 2.33%
- Price to Rent Ratio: 24
- Walk Score: 79
4. Koreatown
- Median Property Price: $1,018,481
- Average Price per Square Foot: $674
- Days on Market: 116
- Monthly Long Term Rental Income: $3,818
- Long Term Rental Cash on Cash Return: 2.25%
- Long Term Rental Cap Rate: 2.27%
- Price to Rent Ratio: 22
- Walk Score: 94
5. Century City
- Median Property Price: $1,502,471
- Average Price per Square Foot: $868
- Days on Market: 106
- Monthly Long Term Rental Income: $4,975
- Long Term Rental Cash on Cash Return: 2.17%
- Long Term Rental Cap Rate: 2.19%
- Price to Rent Ratio: 25
- Walk Score: 89
Start looking for the most profitable long term rental properties in Los Angeles, CA with Mashvisor today.
Should You Invest in Airbnb Properties for Sale in Los Angeles in 2023?
Given the low cash on cash return on short term rentals (1.86%) in Los Angeles, as well as the stricter short term property regulations, they might not be worth your while at this time. Instead of looking to take a slice of LA’s vacation rental market pie, you’re better off investing in long term rentals.
If you’re really keen on investing in short term rentals and listing them on Airbnb, perhaps you should consider looking at other markets outside of Los Angeles.
Mashvisor can help you find the best investment properties in the most profitable vacation rental locations anywhere in the US. All you need to do is sign up to use its massive short term rental database and different investment tools.
Get started on your 7-day free trial with Mashvisor today on your way to a thriving real estate investing career.
Wrapping It Up
It is clear that, even though very competitive and restricted, the 2023 Los Angeles real estate market offers successful opportunities for real estate investors.
Nevertheless, in order to make smart investments in the Los Angeles real estate market in 2023, it is necessary to be sure that your investment complies with the local rules and regulations. Moreover, finding the best areas and properties to invest in is of the utmost importance.
Sounds scary, right? Do not worry! Mashvisor can be a great helper in this task. For instance, all the data above were acquired through our investment property calculator. In addition, you will have access to its huge database. The database is regularly updated, so you only get the most accurate and realistic ROI projections.
Learn more about how Mashvisor can help you find the best deals in the most profitable markets by scheduling a demo now.