Airbnb Los Angeles used to be one of the best real estate investing strategies a couple of years ago, but this is no longer the case. Why? The reason is simple: In December 2018 the City Council passed legislation which allows only primary residences to be rented out on vacation rental platforms such as Airbnb.com, HomeAway, and Vrbo. Nevertheless, there are still feasible real estate investment options in LA in 2019 and beyond.
New Airbnb Los Angeles Laws
On 11 December 2018 the LA City Council passed new Airbnb Los Angeles regulations which took effect in July 2019. Most importantly, from now on only primary residences, occupied by the owner for at least six months a year, can operate as short term rentals in Los Angeles. Thus, buying an investment property for the sole purpose of renting it out on Airbnb is no longer possible in the Los Angeles housing market. Here is a detailed breakdown of all the details of the new LA Airbnb law:
- As a Los Angeles Airbnb host, you can only rent out your primary residence, provided that you live on site for a minimum of six months per year.
- The total number of booking days is limited to 120 days a year, with some exceptions. If a host wants to exceed this number, he/she can register for extended home-sharing and pay an $850 fee.
- A host can register and operate only one vacation rental unit at a time.
- Los Angeles vacation rental homes need to be registered at the Planning Department and pay an $89 fee.
- Only Los Angeles real estate properties approved for residential use can be rented out on short term basis. These exclude cars, sheds, trailers, and others.
- Home-sharing of long term rental units by the renters is allowed, provided that they have approval from the landlord.
- Airbnb LA hosts must provide guests with a Code of Conduct including safety and security requirements as hosts are fully responsible for the actions of their guests.
- Owners of Airbnb Los Angeles rental properties are obliged to pay taxes. In case they advertise their home on a short term rental platform which does not have an agreement with the City of Los Angeles to collect and remit taxes, hosts must obtain a Transient Occupancy (Tax) Registration Certificate from the Office of Finance.
Looking for a top location where short term rentals are fully legal? Check out Airbnb Dallas 2020.
Reasons for the Tough Airbnb Los Angeles Regulations
Before the new legislation was passed, there were over 23,000 LA rentals advertised on home-sharing platforms, and the number was expected to grow in the coming years. Along with the influx of Airbnb guests in the Los Angeles real estate market, there came numerous complaints from homeowners and residents about the level of noise and the compromised sense of safety and security in the city. There were entire buildings of apartments in Los Angeles which started resembling hotels with guests going in and out all the time.
Another reason for the strict Los Angeles Airbnb regulations was the decline in affordability. The Los Angeles, California real estate market was already expensive before the boom in the home-sharing industry, but this trend forced both home prices and rental rates through the roof. Both local and out of state real estate investors started investing in rental properties to turn into vacation homes, increasing demand for houses for sale in Los Angeles. This worsened affordability for homebuyers even more.
In addition, the City’s Planning Department estimated that 6,000-10,000 LA rentals were removed from the traditional local rental market to operate as Airbnb investment properties. This decreased the supply of long term rental properties and increased their rental rates.
Alternatives for Investing in the Los Angeles Real Estate Market
The fact that Airbnb Los Angeles investment properties are no longer a viable option doesn’t mean that investors can’t make money in real estate in LA. There are two main alternative opportunities for those interested in buying rental properties in the LA housing market.
1. House Hacking with Airbnb
Have you heard of house hacking? This is a phenomenon which is going viral in the US housing market 2019. The idea is simple: You buy a duplex, triplex, or another small multi family home so that you live in one of the housing units and rent out the rest. While housing hacking is usually associated with long term rentals, it can work just as fine for short term rental properties.
So, if you are new to the Los Angeles real estate market and are still renting, you can consider buying a home and renting out a room or an entire housing unit on Airbnb Los Angeles. In this way you will have the rental income contribute to or fully cover the monthly mortgage payments for your home.
To help you out in your property search, we’ve put together a list of the top Los Angeles neighborhoods for short term rentals. The figures have been computed by Mashvisor’s Airbnb profitability calculator based on actual data from Airbnb.com. Our real estate investment tool provides investors with readily available, reliable estimates of all crucial metrics including property price, startup costs, recurring expenses, rental income, cash flow, cap rate, cash on cash return, and Airbnb occupancy rate.
Related: Airbnb Data: What Real Estate Investors Need and Where to Get It
Best Neighborhoods in Los Angeles for Airbnb
- Median Property Price: $541,500
- Average Price per Square Foot: $357
- Los Angeles Homes for Sale: 184
- Days on Market: 88
- Airbnb Rental Income: $3,490
- Airbnb Cash on Cash Return: 4.4%
- Airbnb Occupancy Rate: 68.0%
- Median Property Price: $786,800
- Average Price per Square Foot: $351
- Los Angeles Homes for Sale: 65
- Days on Market: 72
- Airbnb Rental Income: $4,720
- Airbnb Cash on Cash Return: 4.3%
- Airbnb Occupancy Rate: 65.0%
- Median Property Price: $616,800
- Average Price per Square Foot: $376
- Los Angeles Homes for Sale: 70
- Days on Market: 61
- Airbnb Rental Income: $2,940
- Airbnb Cash on Cash Return: 3.7%
- Airbnb Occupancy Rate: 61.8%
Related: What’s the Best Airbnb Analytics Platform for 2019?
2. Traditional Rental Properties
The second way to invest in real estate in LA without being negatively affected by the new Airbnb Los Angeles laws is to go for traditional, long term rentals. Los Angeles remains one of the best places to invest in real estate in 2020 with the traditional rental strategy.
We’ve used Mashvisor’s rental property calculator to provide you with a list of the top neighborhoods in Los Angeles for short term rental properties based on detailed real estate market analysis and investment property analysis.
Related: Where to Invest in the Los Angeles Real Estate Market 2019
Best Neighborhoods in Los Angeles for Traditional Rentals
- Median Property Price: $768,000
- Average Price per Square Foot: $368
- Los Angeles Homes for Sale: 49
- Days on Market: 60
- Traditional Rental Income: $3,110
- Traditional Cash on Cash Return: 2.3%
- Median Property Price: $642,300
- Average Price per Square Foot: $436
- Los Angeles Homes for Sale: 37
- Days on Market: 44
- Traditional Rental Income: $2,730
- Traditional Cash on Cash Return: 2.1%
- Median Property Price: $672,800
- Average Price per Square Foot: $412
- Los Angeles Homes for Sale: 39
- Days on Market: 81
- Traditional Rental Income: $3,080
- Traditional Cash on Cash Return: 1.6%
To learn all there is to know about real estate investing opportunities in LA, read our Los Angeles Real Estate Market Report.
In conclusion, despite the recent introduction of these strict Airbnb Los Angeles regulations, LA remains one of the best places to invest in real estate in 2020 – whether for house hacking or traditional rentals. To start searching for a profitable investment property in Los Angeles today, sign up for Mashvisor. We will turn 3 months of research into 15 minutes.