The coastal Southern California City of Los Angeles is better known by its initials, LA. With over 4 million residents, Los Angeles is the biggest city in California in regards to population and the second in the nation, after New York City. While the Los Angeles real estate market typically enjoys positive population growth, it doesn’t surpass the national growth rate. This can likely be attributed to the negative net migration that Los Angeles has been experiencing for the past 5 years.
It’s believed that a high cost of living and a lack of affordable housing in the Los Angeles housing market is the cause of the negative net migration. However, for a Los Angeles real estate investor who can afford to buy and own rental properties in the city, there is high rental demand. According to NeighborhoodScout, around 64% of LA residents are tenants, which means that buying a rental property in Los Angeles makes for a good real estate investment.
The economy is surprisingly not hindered by the slow population growth in Los Angeles. The job market continues to grow at a rate higher than the national. Even though Los Angeles is famous for being home to Hollywood and has been dubbed the Entertainment Capital of the World, its economy goes far beyond the entertainment industry. The city is actually part of the largest manufacturing center in the United States with over 300,000 manufacturing jobs in the Los Angeles-Glendale-Long Beach metro area. Other key industries in LA include banking and financing, healthcare, high-tech research and development, education, architecture, engineering, and both commercial and residential real estate construction.
The Los Angeles real estate market was named one of the Top 20 Markets to Watch in 2019 by the annual PWC real estate report. In the Pacific Region of the US, specifically, it comes in only second to Seattle in terms of overall real estate prospects.
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With the high real estate prices in Los Angeles, it’s natural to see that property appreciation has been significant over the years. According to NeighborhoodScout, Los Angeles properties have experienced a total appreciation of 200.8% since Q1 2000, which is an annual average rate of 6.1%. Typically, housing markets with such high property prices tend to show minimum appreciation once they hit peaks. However, Zillow reports that Los Angeles real estate values appreciated by 4.5% in 2018. So a property investor who can afford to buy an investment property in LA will still enjoy appreciation.
The Los Angeles housing market is currently a buyer’s market as there are more homes for sale on the market than people looking to buy. This is forcing property sellers to negotiate, which accounts for the fact that the median price of properties that sold is far below the median listing price. This fact, along with the property appreciation, makes the Los Angeles real estate market a great place to buy investment properties to rent out if you can afford the price tag.
Opponents of Airbnb in Los Angeles blame the lack of affordable housing and high real estate prices on the growth of the short-term rental industry. With Los Angeles County welcoming 2.7 million guests in 2018, generating $613 million in income for Airbnb Los Angeles hosts, the City Council set out to regulate these rental properties. As of July 2019, non-owner occupied short-term rental properties will be prohibited from being rented out on Airbnb and other vacation rental websites. This means that the operation of Airbnb investment properties is illegal in the Los Angeles real estate market.
For a primary residence to operate within the law, the host must live in the Airbnb rental property for half of the year. Short-term rentals will only be allowed to host guests for up to 120 days a year. Airbnb rentals will be subject to the same hotel accommodation taxes present in LA. Airbnb Los Angeles hosts must register with the city to operate legally at a cost of $89 a year and the rental property must meet all rental safety requirements. Properties under rent stabilization or ones that are considered affordable housing may not be listed for rent on Airbnb.