The property market in Los Angeles and surrounding areas has been booming for the past three years. Southern California is one of the top real estate investing locations in all of North America, sharing global honors with cities like London and Sydney.
Despite the sky-high prices, insiders say that there’s still room for rents to rise. Los Angeles came late to the post-recession property boom and foreign investors still see great potential for the market to grow further. So if you’re thinking of investing in real estate, you’re just in time. However, real estate investing isn’t as simple as house flipping reality shows would have you believe. Here are some tips for protecting your investment and making sure it succeeds.
How to Make Money
Before you take out an expensive loan, or sink your nest egg into a tempting property, you need to know how you’re going to get a return on your investment. In real estate investing there are generally two ways to go about doing this.
- Appreciation – If you can get in early on a piece of land before the property market in the area changes, then you can double or triple your investment. Look for areas that are just starting to recover from a downturn. Or, search for neighborhoods that are about to see large scale development such as Inglewood – now home to the LA Rams- and a region where gentrification is just starting to take hold.
- Rental Income – Opportunities for buying to rent are plentiful, from storage units to run-down businesses, office buildings or apartment properties. Renovating and running a property for rental purposes can pay huge dividends but it will either require hands-on-management, or hiring a third-party agency to handle landlord duties. Airbnb also provides a great opportunity for moneymaking if you’re looking for something more flexible. Look for trendy neighborhoods where younger professionals are moving such as City Terrace, or Cypress Park.
How to Finance It
While interest rates are still low, banks and lenders are increasingly tightening credit controls. In LA’s white hot property market a 3% down payment isn’t going to cut it with the bank. You’ll need at least 20%, especially for a rental property considering you won’t be able to secure a mortgage.
Make sure you’re budgeting for all the expenses you’re likely to incur. This includes HOA fees, housing insurance and property taxes if you’re buying to hold. Renter’s insurance, operating expenses and maintenance fees if you’re buying to rent. Your income needs to cover all these expenses and then some if you’re going to get anything out of the deal.
If you’re looking at a fixer-upper, you need to be even more prepared. Unless you have specific skills in construction or a network of trustworthy contractors at your disposal, you’ll likely spend far more than you envisioned on renovation. Instead search for savvy deals positioned just below market value, and look for easy ways to add home value.
Finally, never buy in your name. Establish a legal entity such as an LLC or a partnership with the help of a qualified attorney to take ownership of the property. This will ensure that the most you’re liable for is your investment in the property itself; otherwise creditors will be able to go after your personal assets to secure repayment if things go south.
If you are interested in buying a property in the Costa Mesa area, Contact Torelli Realty.