The Los Angeles real estate market is a hot market right now. This brings with it good news and bad news:
The Good News for Los Angeles Real Estate Investors
A Los Angeles real estate investment is so hot it can bring a great return on investment with various strategies of real estate investing.
What Makes Los Angeles Long Term Rentals So Great?
Even with the rising Los Angeles real estate prices, the housing shortage, and the almost inevitable bidding wars over the best investment properties, real estate investors are still buying investment property in this housing market. It’s because they are well aware of the good news of the great return on investment a Los Angeles real estate investment will bring.
This is especially true when it comes to long term rentals. L.A. is not only the most populous city in the State of California but actually the second largest city in the US. Long term rental properties are in high demand as the Los Angeles real estate market continues to grow.
This means a buy and hold investment strategy as well as flipping the house can bring a great return on investment in this real estate market.
More interested in Airbnb Los Angeles? Click here to learn all about this type of Los Angeles real estate.
The Bad News for Los Angeles Real Estate Investors
Buying an investment property in the Los Angeles real estate market isn’t the easiest process in the world. Do it wrong, and you can say goodbye to that great return on investment.
You are likely to feel the weight of the symptoms of the seller’s market listed above that don’t seem to deter other real estate investors. That’s why we want to prepare you to invest in Los Angeles real estate. There are key factors to take into consideration when buying long term rentals here. Don’t avoid a great real estate market just because the process is a little daunting and difficult. That’s how you miss the best real estate investing opportunities.
Los Angeles Real Estate Market and Long Term Rental Properties: What to Consider
Los Angeles Real Estate Prices Are High, Really High
If you talk to a real estate agent or an experienced Los Angeles real estate investor, they will tell you one thing: if you can afford to buy a Los Angeles investment property, then go for it. It’s true Los Angeles real estate prices are high.
Median Property Price: $916,724
Not every real estate investor will be able to afford this kind of down payment or monthly mortgage payments, let alone a full cash investment in this real estate market. You don’t want to scrape up the cash investment for a down payment and then end up with a negative cash flow property in one of the best real estate markets.
However, what you need to know is that, if you can afford it, a Los Angeles real estate investment will be well worth it. If you look at the kind of monthly traditional rental income you can get with long term rentals, you will see just that (provided by Mashvisor’s investment calculator):
Median Long Term Rental Income: $3,109
But Affordable Rental Properties Do Exist in the Los Angeles Real Estate Market
Even though the median property price in the Los Angeles real estate market is through the roof, relatively affordable rental properties can be found here. If a real estate investor is willing to put in the time, these long term rental properties can be found.
Just be sure to always get a home inspection done with these less expensive long term rental properties. Even though you’ve probably heard that the Los Angeles real estate market is so hot right now that real estate investors are buying investment property unseen, that doesn’t mean you should too. A return on investment laid out perfectly on paper may be destroyed by hidden structural issues, location faults, and other major issues.
The Cash on Cash Return and Cap Rate
Speaking of return on investment, inexperienced real estate investors might turn away from the Los Angeles real estate market with one quick look at the cash on cash return and cap rate for long term rentals here:
Average Cash on Cash Return for Long Term Rentals: 1.34%
Average Cap Rate for Long Term Rentals: 1.34%
A real estate investor should aim for a market with a much higher cash on cash return and cap rate, right? Well, not necessarily. In a housing market like the Los Angeles real estate market, these kinds of return on investment metrics are actually pretty good. For instance, when it comes to cap rate, the low value here partly represents the low risk real estate investment with a Los Angeles investment property. This is again thanks to high demand for long term rental properties in the location.
With the cash on cash return, the value above will change depending on the amount of down payment you pay for a Los Angeles investment property. Still, cash on cash return doesn’t have to be in a specific range. Weigh all of the elements that make a good return on investment and decide based on that, not just a single value.
On the other hand, there will always be investment properties in the long term rentals market that have a higher cash on cash return and cap rate. Just like with affordable investment properties, a real estate investor has to dedicate the time to look for them.
Natural Disaster Insurance
Some real estate investors steer clear of the Los Angeles real estate market because of the frequency of natural disasters. Wildfires, specifically, cost homeowners and real estate investors over $10 billion in losses in the whole of L.A. County in the past year. Those who didn’t fully insure their rental properties suffered the most.
While real estate investors may avoid the Los Angeles real estate market for this reason, tenants simply will not. This is just another missed real estate investing opportunity in that case. Be sure to take insurance costs into consideration when you start your search for Los Angeles long term rentals. Factor in how they will affect return on investment before buying investment property.
First-Time Real Estate Investor? Consider Getting Help
While there are many instances when you can find the best real estate investments without any major help, real estate agents and real estate investment tools, like Mashvisor, are a must if you wish to successfully invest in Los Angeles real estate. Real estate agents can be expensive, so consider the cheaper alternative of real estate investment tools, if you prefer.
Maneuvering Through the Los Angeles Real Estate Market Will Take Time
Finding long term rentals with a property price, cash on cash return, and cap rate will take time. Finding long term rentals that bring a good return on investment despite the necessary insurance costs will take time. Possible bidding wars will take time. A Los Angeles real estate investor may even have to start the process of buying an investment property over once or twice.
All of this holds true. Yet, real estate investors still flock to this market. Always keep that in mind. The time you invest in finding long term rentals in the Los Angeles real estate market will be worth it. In the end, you’re not chasing a fabled investment property; the best real estate investments really do exist here!
Location in the Los Angeles Real Estate Market
Our last point for what you need to consider is actually one of the most important ones. Not every one of the Los Angeles neighborhoods is equally suitable for long term rentals. You need to know the best neighborhoods in Los Angeles to get you started in your search.
The data for the best neighborhoods in Los Angeles for long term rentals is provided by Mashvisor’s investment calculator.
The Best Neighborhoods in Los Angeles for Long Term Rental Properties
Venice
- Median Property Price: $1,847,000
- Long Term Rental Income: $4,748
- Long Term Rental Cash on Cash Return: 1.53%
- Long Term Rental Cap Rate: 1.53%
Echo Park
- Median Property Price: $1,099,000
- Long Term Rental Income: $3,349
- Long Term Rental Cash on Cash Return: 1.38%
- Long Term Rental Cap Rate: 1.38%
Westlake
- Median Property Price: $895,000
- Long Term Rental Income: $3,319
- Long Term Rental Cash on Cash Return: 1.24%
- Long Term Rental Cap Rate: 1.24%
Mid Wilshire
- Median Property Price: $1,399,000
- Long Term Rental Income: $5,096
- Long Term Rental Cash on Cash Return: 1.09%
- Long Term Rental Cap Rate: 1.09%
Mid City West
- Median Property Price: $1,699,000
- Long Term Rental Income: $4,485
- Long Term Rental Cash on Cash Return: 0.85%
- Long Term Rental Cap Rate: 0.85%
Click here to learn how to find the best long term rentals in the Los Angeles real estate market.
Will buying a long term rental property in the Los Angeles real estate market be a walk in the park? Maybe not. Will your real estate investing journey in this location be rewarding? Yes, if you keep in mind everything from return on investment through the insurance to investing in the best neighborhoods in Los Angeles. Don’t turn away because a seller’s market is intimidating. The best real estate investments are waiting for you in sunny L.A.!