No doubt, Los Angeles remains a leading US city to invest in real estate. There are so many factors that contribute to investing in the Los Angeles real estate market being among the top across the nation, including the population, the economy, the entertainment business, the climate, and the tourist attractions. Whether you are a real estate investor interested in traditional or Airbnb rentals, the Los Angeles real estate scene definitely has something to offer you.
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In such a large and diverse location as Los Angeles, there comes an important real estate question: What’s the best place or neighborhood to buy a rental property in? What does “best” mean in this case? In the case of real estate investments, the “best” always means the one that will bring you the highest return on investment. Real estate investors usually measure the profitability of an investment property by the cash on cash return (CoC return) and the capitalization rate (cap rate). So, let’s take a look at the neighborhoods within the Los Angeles real estate market which offer the highest CoC return and cap rate.
How about the Los Angeles real estate market in general?
Before we delve into looking at specific neighborhoods in details, let’s have an overall look at the Los Angeles real estate market as a whole. The numbers below have been provided by Mashvisor’s investment property calculator, a top choice among the online rental property calculators available at the market at the moment. All the calculations are based on traditional and predictive analytics, which makes them highly reliable.
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- Median Property Price: $908,000
- Traditional Rental Income: $3,250
- Traditional CoC Return: 2.1%
- Traditional Cap Rate: 4.5%
- Airbnb Rental Income: $3,060
- Airbnb CoC Return: 2.0%
- Airbnb Cap Rate: 4.5%
So, the one thing that can be said about the Los Angeles real estate market – whether you are a homebuyer or a real estate investor – is that it is very expensive. The median property price of above $900,000 is much higher than in other top housing markets such as Atlanta ($400,000), Dallas ($403,000), Chicago ($412,000), and San Diego ($678,000). However, this real estate trend is to be expected considering that Los Angeles is the home of Hollywood and thus a major center of the global entertainment industry. Because property prices are so high, rents are also significant, which means that an investor in the Los Angeles real estate market can expect to easily make $3,000 and more per month in the form of rental income.
How does the forecast look for the Los Angeles real estate market?
This year property prices in Los Angeles reached record-high levels, surpassing even the 2007 numbers. According to experts, prices within the Los Angeles real estate market cannot be expected to drop any time soon. To the contrary, they are forecast to go up even more. For real estate investors, this basically means that NOW is the time to invest in Los Angeles real estate properties. Not that Los Angeles properties are very affordable at the moment, but they will be becoming even less affordable, so you should hurry up with your choice of a rental property in LA.
Another positive factor for real estate investors considering Los Angeles is the fact that this is the second most populous city in the US and the most populous one in the State of California. Due to the high property prices, many of the inhabitants will not be able to buy a home any time soon. Alternatively, they will have to turn to renting. Naturally, that’s great news for real estate investors and landlords.
What are the best neighborhoods for buying a rental property in the Los Angeles real estate market?
Finally, we come to the question that’s been intriguing all of us: Where exactly within the Los Angeles real estate market should we be putting our money as real estate investors? Let’s take a look at the most profitable locations in LA at the moment, based on estimates from Mashvisor’s rental property calculator:
1. Westlake
- Median Property Price: $599,000
- Traditional Rental Income: $2,250
- Traditional CoC Return: 2.2%
- Traditional Cap Rate: 4.8%
- Airbnb Rental Income: $3,380
- Airbnb CoC Return: 4.7%
- Airbnb Cap Rate: 7.4%
- Airbnb Occupancy Rate: 68.6%
Westlake is among the top neighborhoods to buy a Los Angeles real estate property for investing purposes. It is a residential and commercial neighborhood, developed in the 1920s. Currently the housing market there is dominated by apartment buildings and other multi family homes. Westlake is significantly more affordable than Los Angeles on average, and the CoC return and cap rate are both quite good, regardless of whether you choose traditional or Airbnb rental property investing.
2. Mid Wilshire
- Median Property Price: $740,000
- Traditional Rental Income: $3,530
- Traditional CoC Return: 3.2%
- Traditional Cap Rate: 5.8%
- Airbnb Rental Income: $2,790
- Airbnb CoC Return: 2.3%
- Airbnb Cap Rate: 4.7%
- Airbnb Occupancy Rate: 60.5%
Mid Wilshire is another great neighborhood to buy an investment property in. it hosts multiple attractions, which drive property prices above the levels in Westlake.
3. Silver Lake
- Median Property Price: $995,000
- Traditional Rental Income: $4,040
- Traditional CoC Return: 2.3%
- Traditional Cap Rate: 4.7%
- Airbnb Rental Income: $2,720
- Airbnb CoC Return: 1.0%
- Airbnb Cap Rate: 3.3%
- Airbnb Occupancy Rate: 59.4%
Yet another wonderful choice for buying a Los Angeles real estate investment property is Silver Lake, a residential and commercial neighborhood. It is best known for the numerous restaurants and hipster hangouts. Although property prices are high, so is rental income, which makes the expected CoC return and cap rate good for real estate investors.
4. Mid City West
- Median Property Price: $963,000
- Traditional Rental Income: $3,630
- Traditional CoC Return: 1.5%
- Traditional Cap Rate: 3.8%
- Airbnb Rental Income: $3,520
- Airbnb CoC Return: 1.5%
- Airbnb Cap Rate: 3.7%
- Airbnb Occupancy Rate: 61.0%
Last but not least, you could consider buying a rental property in Mid City West. But be ready to spend some serious money on this investment property.
Related: The Best California Real Estate Markets: Affordable and Not So Affordable Areas
If you are looking for a location for your next investment property purchase, you can always rely on Los Angeles being one of the top real estate markets nationwide and beyond. Now is an excellent time to invest in the Los Angeles real estate market before property prices go any higher. Thus, make sure to use this article as a guide through the best neighborhoods in the city.