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"THE LOS ANGELES REALTOR" BLOG

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April 1, 2024

Los Angeles Housing Market in 2024: Trends and Forecast

Introduction

The Los Angeles housing market is a dynamic and ever-evolving landscape. As we step into 2024, it’s essential to understand the current state of affairs and anticipate what lies ahead. In this report, we’ll delve into key trends, market indicators, and predictions for the Los Angeles real estate market.

1. Market Overview

Despite occasional fluctuations, home prices in Los Angeles have demonstrated consistent growth over the past several years. Let’s explore the recent trends:

1.1 Median Sold Price

  • In February 2024, the median sold price of existing single-family homes in Los Angeles County was $817,100.
  • This figure experienced a slight dip of 1.9 percent compared to January’s prices.
  • However, it’s crucial to view this within the broader context of the market’s trajectory.

1.2 Sales Volume

  • Despite the dip in median price, there was a noteworthy 8.4 percent increase in sales volume month-over-month.
  • This indicates continued activity in the market, driven by strong demand.

1.3 Year-over-Year Comparison

  • Comparing the data to February 2023, Los Angeles County witnessed a robust 12.4 percent increase in median sold price and a 6.3 percent rise in sales volume.
  • These numbers underscore the market’s sustained growth over the past year.

2. Regional Perspective

Let’s zoom out and examine the broader Southern California region:

2.1 Median Sold Price (Southern California)

  • In February 2024, the median sold price for Southern California as a whole reached $825,000.
  • This marks a 5.0 percent increase from January’s figures.

2.2 Sales Volume (Southern California)

  • The region experienced a significant 14.7 percent surge in sales volume month-over-month.
  • This heightened market activity reflects sustained momentum.

2.3 Year-over-Year Comparison (Southern California)

  • Compared to February 2023, Southern California’s housing market exhibited 10.8 percent growth in median sold price and a 7.0 percent increase in sales volume.

3. Los Angeles Housing Supply Data

  • A balanced market typically lies somewhere between four and six months of supply.
  • Currently, Los Angeles is considered a balanced market, where supply and demand are roughly equal.
  • On average, homes in Los Angeles sell after 42 days on the market.

4. Forecast for 2024

The 2024 forecast for the Los Angeles housing market points to:

  • Sustained Rise in Home Prices: Expect continued appreciation in home values.
  • Increasingly Competitive Landscape: Buyers and renters will face challenges due to high demand.
  • Resurgence in Home Sales: The market will remain active.

In conclusion, while the market may present challenges, having an independent buyer’s agent ensures that your interests come first. Choose wisely, and navigate the real estate market with confidence.

 

March 2, 2024

WHAT IS THE ROLE OF A BUYERS BROKER/AGENT

The real estate industry is a dynamic and exciting field that plays a crucial role in helping individuals and families find their dream homes and make significant investments. At the heart of this industry are two key professionals: the real estate listing broker/agent and the real estate buyer’s broker/agent. I posted yesterday about listing agents and the difference between an Agent and a Broker, you do want a broker representing you directly not through an agent Let’s explore what the role of a buyer’s broker/agent is.

Real Estate Buyer’s Agents

buyer’s agent represents the buyer of a property. Their key responsibilities include:

  1. Property Search and Evaluation:
    • Buyer’s agents assist buyers in finding suitable properties based on their preferences, needs, and budget.
    • They evaluate properties, considering factors like location, condition, and investment potential.
  2. Property Tours:
    • Arranges property showings and provide information about neighborhoods and amenities.
  3. Market Insights:
    • Buyer’s agents provide valuable insights into the local market. They know average price points, neighborhood safety ratings, and other relevant information.
    • Their knowledge helps buyers make informed decisions.
  4. Negotiation and Due Diligence:
    • Buyer’s agents negotiate purchase offers on behalf of the buyer.
    • Buyer’s agents help you perform due diligence on properties of interest.
    • They guide buyers through inspections, appraisals, and other necessary steps.
  5. Transaction Coordination:
    • Buyer’s brokers manage paperwork, contracts, and timelines during the buying process.
    • They work closely with mortgage lenders, title companies, and other professionals to facilitate a seamless transaction.
  6. Client Advocacy:
    • Represents the buyer’s interests throughout the transaction.
  7. Client Support and Guidance:
    • Real estate transactions can be emotional and stressful. Agents provide support, answering questions, addressing concerns, and offering guidance.
    • They act as trusted advisors, helping clients make informed decisions.

In summary, listing agents focus on selling properties, while buyer’s agents assist buyers in finding and purchasing their ideal homes. Both play crucial roles in ensuring successful real estate transactions

 

HERE IS A LIST OF QUESTIONS YOU SHOULD ASK WHEN DECIDING ON A REALTOR TO HELP YOU BUY A HOME

  1. Can I see your real estate license?
    • Ensure you’re working with a trained, accredited professional. A reputable agent will readily provide proof of their license to sell in your area.
  2. Do you have a list of referrals?
    • Every agent should have client referrals. If they don’t include them in their listing presentation, ask for them. References can give you insight into the agent’s professionalism from start to finish.
  3. What’s your experience in this neighborhood?
    • An agent familiar with the local market can provide valuable insights. Ask about their track record in the specific area where you’re buying or selling.
  4. What’s included in your services?
    • Clarify what services the agent provides. Are they available for property tours, negotiations, paperwork, and due diligence?
  5. Is your fee negotiable?
    • Understand the agent’s commission structure. While most agents follow industry standards, it’s essential to discuss fees upfront.
  6. What’s your communication style?
    • Find out how often the agent will update you and their preferred communication channels (phone, email, in-person).
  7. What’s your availability?
    • Ensure the agent’s schedule aligns with your needs. You want someone responsive and available when you have questions or want to view properties.
  8. How do you handle conflicts of interest?
    • Discuss scenarios where the agent may represent both the buyer and seller. Transparency is essential.

Remember that finding the right agent is like dating—trust your instincts, look for genuine empathy, and choose someone who communicates effectively. Take your time, ask these questions, and make an informed decision123

 

 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 
March 2, 2024

What does a Listing Real Estate Agent Do

Let’s first discuss the difference between a real estate agent and a broker. Yes of course I am a Real Estate Broker who started our company, West Los Angeles Real Estate Group. We are known as “The Los Angeles Realtor”, at no time will you have to deal with someone who has to go and get an answer or take care of an item with the help of his broker during the buying or selling of a  home 

 


real estate broker/ agent is licensed to help people buy and sell real estate. They earn a commission when a deal is completed and can represent either the buyer or the seller. On the other hand, a real estate broker performs the same job as an agent but has additional qualifications. Brokers are licensed to work independently and may even employ agents. They oversee transactions, guide agents, and supervise the real estate brokerage. The terms “broker” and “agent” are often interchangeable, but brokers typically have more experience and education

 

 .

 Let’s delve into the essential role of listing Broker / agents in the real estate process. (I will also post what a Buyer’s Agent / Broker does.)  Listing broker/ agents, also known as seller’s broker / agent, play a crucial role in helping homeowners sell their properties. Here’s what they do:

  1. Property Valuation and Pricing:
    • Listing agents evaluate the property’s market value based on comparable sales, local trends, and property condition.
    • They advise sellers on an optimal listing price to attract potential buyers while maximizing returns.
  2. Marketing and Promotion:
    • Creating a Stellar Listing: Listing agents craft compelling property descriptions, highlighting key features and amenities.
    • Professional Photography: They arrange for high-quality photos and virtual tours to showcase the property online.
    • Online Presence: Listing agents list the property on multiple listing services (MLS) and real estate websites.
    • Print Marketing: They may create brochures, flyers, and postcards for traditional marketing.
  3. Showings and Open Houses:
    • Listing agents coordinate property showings with potential buyers and their agents.
    • They may host open houses to attract interested parties.
  4. Negotiation Skills:
    • During offers, listing agents negotiate on behalf of the seller to achieve the best terms.
    • They handle counteroffers, contingencies, and other negotiations.
  5. Legal and Contract Expertise:
    • Listing agents prepare and review contracts to ensure legal compliance.
    • They guide sellers through the paperwork, disclosures, and necessary documentation.
  6. Market Insights and Trends:
    • Listing agents stay informed about local market conditions, pricing trends, and buyer preferences.
    • They provide sellers with data-driven insights to make informed decisions.
  7. Feedback and Communication:
    • After showings, listing agents collect feedback from potential buyers and share it with the seller.
    • They maintain open communication throughout the selling process.
  8. Coordination with Buyer’s Agents:
    • Listing agents collaborate with buyer’s agents to facilitate smooth transactions.
    • They work together to schedule inspections, appraisals, and other necessary steps.
  9. Managing Timelines and Deadlines:
    • Listing agents keep track of important dates, such as closing deadlines and inspection periods.
    • They ensure all parties meet their obligations.
  10. Support and Guidance:
    • Throughout the process, listing agents provide support, guidance, and reassurance to sellers.
    • They address concerns, answer questions, and navigate any challenges.

Remember, a skilled listing broker can significantly impact the success of your home sale. If you’re considering selling, partnering with an experienced professional is essential!

 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 

 

March 1, 2024

Steps In Qualifying for a mortgage

Hi

 

Here are some tips on getting qualified for a mortgage. Have questions or need some help? our team can help you with applying for a mortgage and getting approved.

 

Qualifying for a mortgage in Los Angeles involves several steps. Let’s explore the cosmic path to homeownership:

  1. Check Your Credit Score:
    • Lenders scrutinize your credit history. Aim for a credit score of 620 or higher for conventional mortgages.
    • Some government programs accept scores as low as 580.
  2. Calculate Your Debt-to-Income Ratio (DTI):
    • Your DTI compares your monthly debts (including potential mortgage payments) to your income.
    • Aim for a DTI below 43% for most loans.
  3. Save for a Down Payment:
    • While some programs allow lower down payments, having 20% or more is ideal.
    • Down payment assistance programs may help first-time buyers.
  4. Gather Documentation:
    • Prepare documents such as pay stubs, tax returns, bank statements, and employment history.
    • Lenders will verify your financial stability.
  5. Get Pre-Qualified:
    • Contact a lender to get pre-qualified. They’ll assess your financial situation and estimate how much you can borrow.
    • Pre-qualification helps you understand your budget and strengthens your offer when you find a home.
  6. Choose a Mortgage Type:
    • Common options include fixed-rate and adjustable-rate mortgages.
    • Consider factors like your long-term plans and risk tolerance.
  7. Explore Local Programs:
    • Los Angeles offers programs like the Low Income Purchase Assistance (LIPA) and Mortgage Credit Certificate (MCC).
    • LIPA assists low-income homebuyers with down payments and closing costs.
    • MCC provides a federal income tax credit based on mortgage interest paid.
  8. Attend a Homebuyer Education Seminar:
    • Learn about the homebuying process, financial management, and responsibilities
    • Many programs require completion of such seminars.
  9. Contact Participating Lenders:
    • Reach out to lenders approved for specific programs.
    • They’ll guide you through the application process. 
  1. Explore Loan Programs:
    • Los Angeles offers various loan programs, including FHA loansVA loans, and conventional loans.
    • Each program has different requirements and benefits. Research which aligns with your situation.
  2. Consider Closing Costs:
    • Beyond the down payment, factor in closing costs (e.g., appraisal fees, title insurance, etc.).
    • Some programs allow you to roll closing costs into the loan, but it affects your overall financing.
  3. Shop for Homes Within Your Budget:
    • Armed with your pre-qualification, explore homes within your budget.
    • Remember that property taxes, insurance, and maintenance costs are part of the cosmic equation.
  4. Documentation Submission:
    • When you find your dream abode, submit your documentation to the lender.
    • The  underwriting process—will examine all documents and make sure all the I’s are dotted and t’s are crossed.
  5. Closing:
    • Once approved, you’ll sign the mortgage papers at closing.
    • Congrats you get the keys to your new home!
 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 
March 1, 2024

The Los Angeles Real Estate Market - 3.1.2024

The Los Angeles housing market has been navigating through dynamic changes. Let’s delve into the current trends and insights:

 

  1. Median Prices and Sales:
  2. Housing Supply:
  3. Southern California Overview:
  4. Average Home Value:
  5. Home Sales Volume:
    • In January 2024, Los Angeles County witnessed a total of 5,758 home sales.
    • The Los Angeles Metro Area recorded 6,862 home sales during the same period.
  6. Condo Market:
    • The median sold price for existing condos in Los Angeles County was $600,000 in January 2024.
    • Month-to-month, there was a -1.6% price change, but year-to-year, prices increased by 9.1%.
    • The Los Angeles Metro Area had a median sold price of $550,000, with a month-to-month price change of -1.8% and a year-to-year change of 10.0%.
  7. Luxury Market:
    • The luxury market (homes priced at or above $3 million) in Los Angeles County saw a total of 1,007 sales in 2023.
    • This represents a significant 34.3% increase compared to the previous year.
    • The luxury market is thriving, attracting high-end buyers and investors.
  8. Mortgage Rates:
    • Mortgage rates may seem high in comparison to the last few years but not so long ago interest rates were over 10% and even over 15%.
    • However, experts predict a gradual increase in rates throughout 2024, so buyers are keen to lock in favorable rates now.

Remember that real estate trends can vary by neighborhood, property type, and other factors. It’s essential to consult with local real estate professionals for precise insights tailored to your specific needs. If you’re considering buying or selling, stay informed and work closely with a knowledgeable agent or broker.

 

In summary, the Los Angeles real estate market is experiencing positive growth, driven by demand, limited supply, and favorable mortgage rates.

 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 
Feb. 29, 2024

You Need A Home Evaluation Even IF Not Selling

There are many reasons you need to have your home appraised even if not selling. The following is a list of reasons that you should keep up to date. I am Bob Schmalz the independent Brokerage serving Real Estate needs throughout the Los Angeles area. You have questions about Real Estate and I have answers, so call or text me and I will be more than glad to tell you the answers along with some information about our company

 

1. Looking for Financing: Whether you’re accessing home equity through a loan, line of credit, or refinance, lenders need to know your home’s market value to determine available equity.

2. Divorce: During divorce settlements, an appraisal ensures that the house’s value is fairly split between spouses. If one party plans to stay in the house, an accurate assessment helps determine the owed amount.

3. Bankruptcy: When filing for bankruptcy, homeowners must prove their financial situation, including property value. An appraisal provides essential documentation.

4. Construction Defects: If a home suffers significant damage due to construction defects, an appraisal helps assess the extent of damage, especially for insurance claims or legal actions.

5. Bail Bonds: Homeowners using their property as collateral for a bail bond require an appraisal to determine its value relative to the bond amount.

6. Eliminating PMI: Homeowners with a conventional loan and less than a 20% down payment often pay private mortgage insurance (PMI). If property values have increased, an appraisal can help eliminate PMI payments1

7. Estate Planning: When planning your estate, understanding the value of your property is crucial. An appraisal helps determine inheritance tax, equitable distribution among heirs, and overall estate value.

8. Property Tax Assessment: Local governments use property appraisals to assess property taxes. If you believe your property is overvalued, an independent appraisal can provide evidence for an appeal.

9. Home Renovations: Before major renovations, an appraisal helps assess the impact on your home’s value. It guides decisions on which upgrades yield the best return on investment.

10. Insurance Coverage: To ensure adequate insurance coverage, homeowners need an accurate appraisal. It helps determine replacement cost in case of damage or loss.

11. Legal Disputes: In legal cases related to property, such as boundary disputes or eminent domain, an appraisal provides an unbiased assessment of value.

12. Home Equity Line of Credit (HELOC): Lenders require an appraisal to approve a HELOC. It helps determine the maximum credit amount based on your home’s value.

13. Historical or Sentimental Value: Sometimes, homeowners want to know the value of their property for sentimental reasons. An appraisal can provide reassurance or insights into family history.

14. Property Investment Decisions: If you’re considering purchasing additional properties or investing in real estate, an appraisal helps you make informed decisions. It provides insights into the value of potential investments.

15. Home Equity Conversion Mortgage (HECM): For seniors aged 62 and older, an HECM (reverse mortgage) allows them to tap into their home equity. An appraisal is necessary to determine the loan amount.

16. Property Disputes: In cases of property disputes, such as boundary disagreements with neighbors or disagreements with local authorities, an appraisal provides an objective assessment of property value.

17. Insurance Claims: When filing an insurance claim due to damage (e.g., fire, or natural disasters), an appraisal helps determine the pre-loss value of the property. This ensures fair compensation.

18. Financial Planning: Whether you’re refinancing, consolidating debt, or planning for retirement, understanding your home’s value is essential for financial planning.

Of Course, I can save you hundreds of dollars and do that evaluation for no cost and of course, I have a reason; perhaps one day you will need the services of a professional broker, or perhaps someone you know will need one. 

I hope you enjoyed this article and please check out some more of my blogs there is information in them for everyone.

 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 

 

 

July 21, 2023

Why Multifamily Investments Are a Good Option When Inflation Runs Wild

With stubborn inflation, investment triggers feel harder to pull in 2024. Multifamily real estate is a strong option.

In an inflationary environment, many investors flounder as pulling the trigger on investments of any kind can feel like higher stakes. The questions are endless. With rising interest rates, falling returns and concerns about recession, where are our dollars best placed to serve our long-term financial goals? Will I need to keep this cash more liquid in case inflation gets out of hand? Or what investments are safer when economics are shifting so rapidly all around us?

One particular category of investment is especially daunting to many, and even more so during shifting economic times—commercial real estate investing. In countless financial advisory offices this year, the question has been posed ‘is now a smart time to invest in commercial real estate?’

Our analysis points to yes, particularly when it comes to multifamily. Unlike stocks and bonds, real estate provides a strong defensive strategy against market volatility, a hedge against inflation and a  wide range of tax advantages (especially in 2023). Additionally, the sector is currently benefitting from a fundamental imbalance in supply and demand, which is generating higher income and cash flows not available with other asset classes. Let’s take a closer look at the many factors at play.

Recession

There are several advantages of investing in multifamily real estate in a recessionary environment. Supply of both rental and for-sale housing is constrained, as lenders and equity partners have moved to the sidelines and new housing deliveries are delayed. Demand is increased, as renters are priced out of homeownership by exorbitant home costs and rising interest rates, and new cohorts join the rental market. Apartment occupancy rates also tend to remain firm during economic downturns, as renters are disinclined to relocate and opt to stay in the rental housing longer than they otherwise would.

Interest rates

Apartments are likely to perform well in both stable and rising interest rate environments. Historically, financing rates for apartments have been lower than other commercial property types, as federal backing of multifamily mortgages from Fannie Mae and Freddie Mac results in a lower risk premium than privately sourced mortgages. In fact, according to Real Capital Analytics, apartments have benefitted from financing rates that averaged more than 48 basis points lower than commercial property over the last 10 years. Apartment investors may actually benefit from demand destruction caused by higher interest rates—especially if the increase in rates is due to rising inflation, as is underway now. As homes become more expensive to buy, and new product more expensive to build, the existing inventory of rental housing becomes more valuable and in demand.

Inflation

Multifamily investment can serve as a hedge against inflation by offering the opportunity to reset lease rates as frequently as every 12 months, compared to three to 10 years for other property types. This provides managers with the flexibility to quickly reset pricing to meet demand or offset rising operational costs.

Historically, apartment rents have tended to outpace overall inflation rates. However, the potential for pushing rents upward will vary by how cost-constrained each market is, so strong local knowledge and acquisition selectivity is essential.

RealPage recently published a study that found the vast majority of renters were able and willing to pay their rent. While rents have soared due to a 40-year high in inflation, so too have renters’ incomes. This has kept rent-to-income ratios much lower than widely assumed, and not enough to meaningfully change apartment affordability.

The benefits to apartment investors go beyond the dramatic increase in rents. At Hamilton Zanze, operating expenses for the company’s national portfolio of multifamily properties represent approximately 40 percent of revenue. Even though rents are rising faster than inflation, if both revenue and expenses rose at the rate of inflation, our net operating income (NOI) and cash flow would still increase.   

Liquidity

Liquidity is the biggest factor differentiating multifamily from other types of commercial real estate right now. As capital markets have largely frozen up, it has become incredibly difficult to get a loan for an office building, for example. We predict we will see a significant amount of distress in these properties, which may provide opportunities for savvy investors. By contrast, there is plenty of liquidity for apartments, with government-backed lenders like Fannie Mae and Freddie Mac doing exactly what they are supposed to do—step up to provide liquidity to the nation’s residential mortgage finance system. As a result, apartments have been spared the dramatic drop in asset values we are currently seeing with other types of commercial real estate.

Tax benefits (especially in 2023)

Total returns on real estate investment are enhanced with several tax advantages, including depreciation (particularly with bonus depreciation through cost segregation), capital gains deferral through 1031 exchanges, as well as the tax-efficient cash flow to investors considered a return of capital and reduction of basis before becoming taxable.

Smart investors will want to act quickly in the fourth quarter to take advantage of bonus depreciation, which allows purchasers to deduct 100 percent of eligible property through December 2022. Beginning with acquisitions in 2023, this benefit will gradually decrease each year until it is phased out in 2026.

Portfolio diversification

As the world slowly reemerges from COVID and investors prepare for whatever lies ahead, it is important to remember that portfolio diversification is essential in uncertain economic times. Apartment properties can provide a proven alternative asset class to a well-constructed portfolio, and to a growing number of investors, the category is increasingly recognized as a “fourth asset class” and a valuable alternative to traditional investments such as stocks and bonds.

Valuations

Another question on investors’ minds right now is what is happening with valuations.

Capitalization rates (and therefore asset values) are largely influenced by capital flows—more so than interest rate movements. According to Dr. Peter Linneman, “the connection between both multifamily and office cap rates and interest rates is weak, while the connection with flow of funds is the powerful driving force.”

Currently, cap rates have expanded by 10-20 percent, as interest rates have caused many funds and private equity groups to sit on the sidelines. However, there is a tremendous amount of equity that needs to be deployed for apartments and we expect transactional volume will pick back up in the first quarter of 2024. As the flow of capital returns to the market, cap rates should begin to stabilize.

According to a new report from Freddie Mac, multifamily is well positioned despite pressure on cap rates, and they expect every market they cover to experience gross income gains this year. The reason for this is that while cap rates are influenced by risk appetites, perceived uncertainty, cost of capital and market upside, net operating income (NOI) is generated through operations. Consequently, NOI growth is eroding the decrease in valuation from cap rate expansion.  

Demographic trends

Homeownership rates remain well below levels witnessed in the last recession and today’s demographic trends continue to favor renting. The prime age group for renters—typically those 20-34 years old—is still increasing in size. In fact, more than half of the nation’s total population are now members of the millennial generation or younger. 

While millennials are getting older, many continue to rent, whether as a lifestyle choice or due to rising home prices and burdensome student loan debt. Gen Z has also now entered the rental housing market, which will have a significant impact in the years ahead. Additionally, due to lifestyle changes and down-sizing, baby boomers also continue to be a significant source of apartment demand.

High demand, limited supply

Despite recent increases in multifamily starts, demand for rental housing still far exceeds current supply with a shortfall of 600,000 units, as reported by the National Multifamily Housing Council and the National Apartment Association.

In recent years, apartment construction has been concentrated on class-A, “renter by choice” product in downtown or central business district (CBD) areas of the major gateway markets. This has reflected demand from young workers who prioritized prime location and amenities over living space, a preference that will likely shift as millennials seek larger, more suburban properties to start families. Developers have largely overlooked prime suburban areas, where rent and occupancy performance have outperformed downtown areas. This presents an opportunity for investors to acquire suburban apartments at more favorable initial acquisition yields.

There continues to be limited new development for properties targeted toward the more moderate “renters by necessity,” who are a stable source of demand and less likely to shift toward homeownership regardless of changing market conditions.

It is worth noting that current inflation is also impacting the upcoming supply of new multifamily product. The rising price of construction materials and labor costs may cause some planned projects not to be built and limit the development of future projects. This will have the effect of making existing product more valuable, as replacement costs increase.

Affordability gap

While rents have been rising sharply, home prices have risen even faster. As a result, renting remains a far more affordable option than buying almost everywhere. According to recent Zillow data, mortgage payments are higher than rent in 45 of the 50 largest U.S. metros, up from 22 in 2019. Typical U.S. rents are now $2,031 per month, having crossed the $2,000 threshold for the first time this year, with an annual growth rate more than three times that of July 2019.

As barriers to homeownership remain high, which will likely hold true for some time, renting remains the most cost-effective option for many would-be-buyers.

Pandemic impact

Counter to the assumptions of many, rent collections have remained generally stable throughout the pandemic—consistently averaging between 95 percent and 96 percent since March 2020, according to RealPage.

After rents were frozen for two years, landlords are now playing catch-up. Despite sharp rental rate increases in many markets, residents are staying in their apartments longer. According to RealPage, apartment retention rates rose by 3.5 percentage points year-over-year in April to 57 percent. Notably, when renters renew their leases, they are also spending significantly more—10.7 percent more when compared to their previous lease. New renters, however, are paying even higher rates for the same units.  

Demand for rental housing continues to outpace inventory in many areas. The 2023 Rental Housing Report from the Joint Center for Housing Studies (JCHS) of Harvard University reported the lowest rental vacancy rates since the mid-1980s.

Conclusion

In summary, there are many compelling reasons for why now is a particularly good time to invest in multifamily real estate. Historic demand across multiple generations, an anemic supply of new housing, demographic and lifestyle trends that favor renting, and economic advantages for both investors and renters will continue to provide tailwinds to the multifamily market. It is, quite frankly, a great time to be a landlord in whatever form or fashion that role can be held.

 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com

 

July 11, 2023

Los Angeles Housing Market: Prices, Trends, Forecast 2023 / 2024

The Los Angeles housing market has been closely watched by real estate professionals and potential buyers alike, as it is one of the most active and competitive markets in the United States. In this report, we will take a closer look at the current state of the Los Angeles housing market, including prices, trends, and forecasts for the rest of 2023. We will analyze the latest data on median home prices, sales volume, and inventory levels to provide insights into what buyers and sellers can expect in the months ahead.

The May 2023 Los Angeles Housing Market Report reveals a mixed picture of the current state of the market. While the median sold prices experienced some fluctuations, the sales volume demonstrated an overall upward trend. These changes may indicate shifting dynamics in the demand and supply of housing in the region.

Median Sold Price of Existing Single-Family Homes

·       Los Angeles County's median home price in May 2023 was $744,770.

·       The median home price in April 2023 was $738,520.

·       Last year, in April, the median home price was $798,720.

The median sold price of existing single-family homes is an essential indicator of the overall health and stability of the housing market. C.A.R.’s resale report for May 2023 shows that the median sold price for Southern California stood at $800,000. This represents a slight increase of 1.9% from the previous month but a significant decrease of 5.3% compared to May 2022.

Within Los Angeles County, the median sold price was slightly lower at $744,770, with a month-to-month increase of 0.8%. However, when compared to May 2022, the median sold price in Los Angeles County witnessed a decline of 6.8%.

The Los Angeles Metro Area experienced a median sold price of $765,000 in May 2023, showing a month-to-month increase of 3.4%. Comparing this to May 2022, the median sold price dropped by 5.0%.

Sales Trends

Examining the sales trends in the Los Angeles housing market provides us with valuable insights into the level of activity and demand. In May 2023, the Southern California region reported a month-to-month increase of 19.4% in sales, indicating a rise in buyer interest. However, when compared to May 2022, there was a significant decrease of 22.3% in sales.

Within Los Angeles County, the sales figures for May 2023 showcased a month-to-month increase of 20.6%. However, in a year-over-year comparison, the sales volume dropped by 21.8%.

Similarly, in the Los Angeles Metro Area, sales experienced a month-to-month increase of 25.0%. Nonetheless, there was a notable decline of 20.9% in sales when compared to May 2022.

Housing Supply 

Generally, a balanced market will lie somewhere between four and six months of supply. Inventory is calculated monthly by taking a count of the number of active listings and pending sales on the last day of the month. If an inventory is rising, there is less pressure for home prices to increase. With 2.2 months of supply left, it is still short of what economists say is needed for a balanced market. Hence, the Los Angeles County housing market will continue to see upward pressure on home prices.

·       Months Supply of Inventory (SFH) for Los Angeles County is now 2.2 months.

·       Months Supply of Inventory (SFH) for the Los Angeles Metro Area is 2.2 months.

·       Months Supply of Inventory (SFH) for Southern California is 2.1 months.

Is Los Angeles a Seller's Real Estate Market?

The following Los Angeles housing market trends are based on single-family, condo, and townhome properties listed for sale on realtor.com. Land, multi-unit, and other property types are excluded. This data is provided as an informational resource only.

When it comes to the real estate market, one crucial factor to consider is whether it favors sellers or buyers. A seller's market indicates that there is more demand from buyers than the available supply of homes. Let's explore whether Los Angeles County, CA qualifies as a seller's real estate market based on data from May 2023.

Median Listing and Sold Prices

In May 2023, the median listing home price in Los Angeles County, CA was $965K, showing a significant increase of 7.3% compared to the previous year. The median listing home price per square foot was $625, indicating the high value placed on real estate in the area. Furthermore, the median home sold price in Los Angeles County during May 2023 was $830K.

Sale-to-List Price Ratio

The sale-to-list price ratio in Los Angeles County was 100% in May 2023. This means that, on average, homes were sold for approximately the asking price. A sale-to-list price ratio of 100% suggests that sellers have the advantage in negotiations, as buyers are willing to meet their asking prices.

Seller's Market

Los Angeles County, CA can be classified as a seller's real estate market in May 2023. The combination of high median listing prices, rising year-over-year prices, and homes selling for the asking price indicate a market that favors sellers. In other words, there are more people looking to buy than there are homes available.

Average Days on Market

On average, homes in Los Angeles County, CA sell after spending 37 days on the market in May 2023. This metric, known as the median days on market, provides insights into the pace of home sales. It is worth noting that the trend for median days on the market in Los Angeles County has decreased since last month, suggesting a faster-selling market. However, compared to the same month last year, the median days on market has slightly increased, indicating a potentially more balanced market than before.

Hence, Los Angeles County, CA can be characterized as a seller's real estate market in May 2023. The combination of high listing prices, homes selling for the asking price, and relatively quick sales suggests that sellers have the advantage in negotiations.

Are Home Rents Going Up or Down in Los Angeles?

The Zumper Los Angeles Metro Area Report analyzed active listings across the metro cities to show the most and least expensive cities and cities with the fastest growing rents. Rents in Los Angeles are higher than the state median rent. The California one bedroom median rent was $2,065 last month. Laguna Beach was the most expensive city with one-bedrooms priced at $3,500 while Twentynine Palms was the most affordable city with one bedrooms priced at $1,000.

The Fastest Growing Cities in the Los Angeles Metro Area For Rents (Y/Y%)

·       Laguna Beach had the fastest growing rent, up 16.7% since this time last year.

·       San Bernardino saw rent climb 15.7%, making it the second fastest growing.

·       Beverly Hills ranked as third with rent jumping 15.5%.

The Fastest Growing Cities in Los Angeles Metro Area For Rents (M/M%)

·       Twentynine Palms had the largest monthly rental growth rate, up 6.4%.

·       Ontario rent increased by 6% last month, making it second.

·       Newport Beach & West Hollywood tied for third with rents climbing 5.9% last month.

 

Los Angeles Housing Market Forecast 2023-2024

Let us look at the price growth recorded by Zillow, a leading real estate marketplace. As of May 31, 2023, the average home value in the Los Angeles-Long Beach-Anaheim area stands at $885,564. This figure represents a 4.3% decrease over the past year, indicating a slight decline in home prices. Additionally, homes in this region typically go pending in around 13 days, showcasing a fast-paced market with properties quickly attracting buyer interest.

Home Value Forecast

Based on the market data available as of May 31, 2023, a 1-year market forecast for the Los Angeles housing market suggests a 4.3% increase. While the past year has seen a decline in home values, the forecast anticipates a rebound and a positive trajectory for home prices in the coming year. It is important to note that market forecasts are subject to various factors and should be interpreted with caution.

Sale to List Ratio and Pricing Trends

The median sale to list ratio in Los Angeles, as of April 30, 2023, is 0.998. This ratio indicates that, on average, homes are selling very close to their list prices. It suggests that sellers are generally achieving their desired sale prices, with minimal deviation from the initial asking price.

Sales Price Performance

In April 2023, approximately 42.3% of home sales in Los Angeles were closed above the list price. This statistic reflects a competitive market environment where buyers are willing to pay more than the listed price to secure a property. On the other hand, around 45.1% of sales were closed under the list price, indicating that some buyers were able to negotiate a price lower than what was initially advertised.

Median Days to Pending

The median days to pending, as of May 31, 2023, is 13. This metric represents the median amount of time it takes for a property to receive an offer and go under contract. A relatively low median days to pending value indicates a fast-moving market where buyers are actively engaging with properties and making timely purchase decisions.

Is Los Angeles Housing Market Going to Crash?

Some of housing analysts say that home prices in Los Angeles and Orange counties will fall by the middle single digits in 2023, while home prices in the Inland Empire will fall by the high single digits over the same time period. They anticipate that prices will continue to fall on a regional and national scale in 2024 but at a considerably slower rate, followed by a little increase in 2025.

Do buyers have any advantage? Is it the right time to buy a house in Los Angles? This is a never-ending question with no definitive answer. Buyers believe it is not a very good time to buy a home in Los Angeles due to rising mortgage rates and home prices. On the other hand, it is a good time to sell so you can expect more inventory due to increasing seller optimism.

More houses are expected to be listed in the coming months which may bring down the pace of appreciation to some extent. Affordability is a big issue in Los Angeles County as nearly three in four residents can’t afford to buy a median-priced home in the area. According to Housing Wire, an index that combined median income and median home prices made Los Angeles the least affordable city in the country, and several younger residents said they were concerned they will never be able to afford a house. Home shoppers are leaving Los Angeles for cheaper metros, the most popular being Las Vegas.

Is Real Estate a Good Investment in Los Angeles?

Should you consider Los Angeles real estate investment? Many real estate investors have asked themselves if buying a property in Los Angeles is a good investment. You need to drill deeper into local trends if you want to know what the market holds for real estate investors and buyers in 2023.

Los Angeles is a moderately walkable city in Los Angeles County. It is home to around four million people. It is the largest city in California and the second-largest in the United States. Los Angeles Metropolitan Area is a 5- region that includes Los Angeles, Orange, Riverside, San Bernardino, and Ventura. The L.A. metropolitan area with over 13 million people rivals New York in population as the largest in the country. However, being a huge real estate market is not reason enough to invest here.

The Los Angeles real estate market is considered one of the premier markets for both investors and homeowners. It is also touted as the nation’s least affordable housing market. If you look in the long-term, it’s always a good investment to buy in Los Angeles. It is said that you will always get your money back or you would make a profit, as Los Angeles has a track record of being a great long-term investment.

Los Angeles Rental Market Trends 2023

Current Rent Prices in Los Angels: Before the pandemic, the average rent for an apartment in Los Angeles was $2,524, growing by 2% YTY, according to RENTCafé. The average size for a Los Angeles, CA apartment is 792 square feet. 40% of the households in LA are renter-occupied while 60% are owner-occupied. Studio apartments are the smallest and most affordable, 1-bedroom apartments are closer to the average, while 2-bedroom apartments and 3-bedroom apartments offer more generous square footage.

As of June 2023, the average rent for a 1-bedroom apartment in Los Angeles, CA is currently $2,399. This is a 1% increase compared to the previous year. Over the past month, the average rent for a studio apartment in Los Angeles remained flat. The average rent for a 1-bedroom apartment decreased by -1% to $2,399, and the average rent for a 2-bedroom apartment increased by 2% to $3,375.

·       The average rent for a 2-bedroom apartment in Los Angeles, CA is currently $3,375. This is a 5% increase compared to the previous year.

·       The average rent for a 3-bedroom apartment in Los Angeles, CA is currently $4,750. This is a 12% increase compared to the previous year.

·       The average rent for a 4-bedroom apartment in Los Angeles, CA is currently $6,700. This is a 28% increase compared to the previous year.

Some of the most affordable neighborhoods in LA are:

·       Jefferson Park, where the average rent goes for $1,355/month.

·       El Sereno, where renters pay $1,396/mo on average.

·       Vermont Knolls, where the average rent goes for $1,445/mo.

·       Glassell Park & Cypress Park, where the average rent goes for $1,485/month.

·       Cypress Park, where renters pay $1,396/mo on average.

·       North Hills, where renters pay $1,530/mo on average.

Construction Isn’t Meeting Housing Demand in LA

The Los Angeles housing market has seen a bump in residential construction. This has helped to satisfy some demand from renters. However, due to increasing demand, the new supply hasn’t brought prices down. The current supply of existing single-family homes is 1.4 which is insufficient to meet the demand. This also suggests that any new wave of construction will at most result in rental rates remaining steady instead of causing them to fall.

The geography of this region also limits the supply. The Los Angeles metropolitan area is perched between the ocean and the mountains. You obviously can’t build on water. There’s only so far you can build into the hills when mudslides and earthquakes limit how much you can build there. The Los Angeles real estate market is further constrained by the vast national parks around L.A. like the Angeles National Forest. These areas simply cannot be turned into residential areas.

Two of the most fundamental economic indicators are employment and income. Home sales usually are directly tied to an economy's health and rise and fall with economic activity. As economies slow, the supply of money tends to become more restrictive. What makes Los Angeles unique is the employment market. Want to work in Hollywood? Move to L.A. Want to work for a production company or in fashion? Come to L.A. If rent is too high, share an apartment or single-family home with friends. In terms of home prices, income, and employment indicate whether people can afford current and future increases.

The Golden State added 310,300 jobs in 2019, a 1.8% increase, to a total of 17.61 million, according to data released by the California Employment Development Department. The previous year’s increase was 1.6%. In Los Angeles County, nonfarm jobs grew by 67,800 to a total of 4.65 million. That was a 1.5% rise, led by healthcare and social assistance (up 28,000) and construction (up 8,500). The unemployment rate was 4.4% in December, down from 4.7% a year earlier.

 

May 22, 2023

Is Building An Additional Dwelling Unit (ADU) Right For You

Why build an ADU on your property?

 

Many homeowners are excited about the simplified restrictions and are now exploring building an accessory dwelling unit on their property, but why? I’d say it comes down to two things: their new ability to add living space to their property in a simplified manner, coupled with the tremendous variety of potential uses for an ADU.

 

Adding square footage to an existing home in the past meant building an ‘addition’ or second story, which was a headache. Not only was it often very costly, time-consuming, and usually required considerable changes to the home's existing layout, but it also meant living through the discomfort of construction in your home.

 

An accessory dwelling unit relieves many of these problems and allows for many flexibility in uses. People are building them as extra space (an office or guest house), a music or yoga studio, a mancave or she-shed, or a home for their retired parents or grown children.

 

 

Beyond these ‘typical’ uses, it’s also an opportunity for a homeowner to use as a rental unit for additional income. I’ve heard from several soon-to-be retired homeowners planning to build an ADU in Los Angeles so they can move into it (as they don’t need as much space) and rent their primary home as a source of retirement income. That’s pretty ingenious.

 

Who can build an ADU?

 

With regard to parking, an ADU is exempt from any parking requirements as long as the property is within one-half mile of public transit (bus stop, etc).ADU on their property

 

Los Angeles ADUs are also allowed on multifamily properties such as duplex, triplex, four-plex, and apartment buildings. These properties generally have different guidelines for the construction of ADUs, but they also have the potential to build several ADUs on a single property. 

 

If converting an existing garage into an ADU, two spots need to be maintained for the existing residence but can be uncovered spots on a driveway, which can be side-by-side or even tandem. A new accessory dwelling unit must be at least 10’ away from the existing house and garage or it must be attached to either. Also, a new unit must be at least 4’ from both the rear and side property lines. A garage conversion into a living space, however, does NOT need to meet these setback requirements.

 

How much does an ADU in Los Angeles cost?

 

An accessory dwelling unit cost will vary greatly in cost based on the options and size you choose. As discussed, the most cost-effective option is to convert an existing garage into an ADU garage conversion.

 

Since the major components already exist, the construction entails items such as constructing the fourth wall (where the garage door is currently), adding the interior components such as interior walls, a kitchen, bathroom, flooring, etc; adding windows and doors, plumbing, electrical, HVAC, insulation, and a new sewer line that will probably connect to the sewer lateral at the front of the main home.

 

 

 

 

The cost for an ADU garage conversion can usually range from $95,000-$120,000 depending on the homeowner’s requirements. Costs to construct a new accessory dwelling unit in Los Angeles can also vary considerably based on size, the number of stories, location, access, etc, but will generally range from $150,000-$400,000

A safe rule of thumb is to assume $250-$400 per square foot – the bigger the space, the lower cost per square foot. If you’re considering ‘building up’ for a 2-story ADU, costs will go up considerably as well. Keep in mind that ADU cost also can vary greatly depending on the quality and style of materials you plan to use. ADU cost will be affected by both interior materials (flooring, kitchen cabinets, tile, lighting, etc) as well as exterior materials such as roofing, stucco/siding, hardscape & landscape. Finally, ADU costs are affected by things like ADU permit cost, city requirements or fees, and the proximity to utilities on your property. For ADU cost-saving ideas check out this blog (link). 

 

Finding The Right Team – How do I hire a good Los Angeles ADU contractor?

 

When looking to build an accessory dwelling unit or even starting to explore the idea, it’s best to search for only local, licensed General Contractors. No other contractors are qualified or equipped to do this sort of construction, and using an unlicensed contractor or handyman would be a mistake.

 

 

Any contractors you contact, always confirm they have experience with these types of projects. It is best to hire a contractor who’s built additions and garage conversions in the past and knows the potential issues/pitfalls. There are several other important criteria you should use in selecting a contractor, not including their cost estimate.

 

Other things to look for in a contractor include:

  • Check for a valid contractor’s license

It’s extremely important to check their license on the Contractors State License Board website to confirm it is active, there are no disciplinary actions, and it has Workers Compensation insurance associated with it (assuming the GC has employees).

  • Make sure they’re insured

Always ask the contractor for a copy of his insurance certificate and make sure that it hasn’t expired. It might be a good idea to call the insurer directly, just to be sure. There have been cases reported where uninsured contractors have ‘Photoshopped’ their insurance papers to trick homeowners, so you can never be too careful.

  • Check their references

Ask your contractor for at least three references you can call. It’s important to ask them about their experience and satisfaction with the quality of the contractor’s work. If you can get any pictures of the work, even better.

  • Read their reviews online

It’s also a good idea to do a Google & Social Media search of the contractor to ensure there are no major red flags. Read any reviews you can find about their business, and don’t be afraid to address what you found with the contractor if there is anything concerning.

 

Building an ADU is not dissimilar to building a small home. Therefore, it’s super important to interview multiple ADU contractors in Los Angeles. The planning, permitting, and construction of an ADU is a long process, so the ADU contractor you select and hire will be “in your life” for a long time. You can be certain there will be cost overruns and delays, so ensuring that you’ve hired an honest and trustworthy ADU contractor will make a big difference during the process. The right contractor will be upfront and communicative with you.

 

 

 

 

 

 

 

 

 

May 22, 2023

What is an Accessory Dwelling Unit (ADU)?

What Is an Accessory Dwelling Unit (ADU)?

For many aspiring real estate investors, having enough money to put down on a property can be a barrier to entry. But real estate investing doesn’t have to start with buying a house. A more affordable way to get started can be by buying or building an accessory dwelling unit (ADU).

An ADU is a second residential unit that shares a building lot with another home. So, if you already own your primary residence, you may be able to build an ADU on your existing property and rent it out (i.e., house hacking). In turn, you may be able to use the extra rental income to save up for a separate investment property.

In this article, we’ll explore what an ADU is, the different types of ADUs, the benefits of using an ADU for rental purposes, and more.

What Counts as an ADU?

 

To be considered an ADU, a structure must have all the amenities necessary for living. That includes a bathroom and kitchen as well as standard utilities like water, electricity, and heating. It must also have a separate entrance from the primary home.

An ADU can look like a basement apartment, guest house, backyard cottage, or even a garage or barn (if the necessary elements are added).

What all ADUs have in common is that they share a building lot with another (usually larger) primary structure. As a result, they are considered a part of the main home and cannot be sold as a separate piece of real estate.

Types of ADUs

 

Now that you know what an ADU is, here are the three main types of ADUs:

  • detached ADU (DADU) is structurally separate from the main home. This could be a tiny house, a backyard cottage, or a detached garage that’s been renovated. Most detached ADUs are somewhere between 400 and 800 square feet.
  • An attached ADU (AADU) is connected to the main home. It could be an apartment built onto the back or side of the house, for example. Attached ADUs can be a good option for smaller lots that may not have space for a detached ADU.
  • An internal ADU (IADU) is an ADU that exists entirely within the primary property. This could be a basement apartment, attic apartment, or any interior space that has been converted into its own living space with a separate entrance.

 

Benefits of Owning an ADU

 

As an aspiring investor, building an ADU can offer many benefits. Here are some to consider:

Potential Rental Income

 

ADUs can be a great source of rental income if your zoning laws allow them.

If you’re able to use an ADU for rental income, you can either rent them out to a long-term tenant via a traditional 12-month lease or put it up as a short-term rental (STR) on platforms like Airbnb and VRBO (make sure to check your local STR regulations since some areas place heavy restrictions or even bans on STRs).

Either rental strategy is a great way to leverage the untapped potential of your primary residence to make some extra cash (and save for a separate investment property!).

Potential Property Appreciation

 

Another benefit of building an ADU is that it can add value to your home. According to United Dwelling, an ADU can improve the value of your home by up to 30%.

How? An ADU adds extra living space that can serve as a guest house, an office, or an additional rental unit, which makes the property more attractive to future buyers.

As an investor, you may be able to take advantage of this appreciation by selling the property (which now includes an ADU) for a profit when you’re ready to move onto another property.

How to Comply with Local ADU Regulations

Before you start building an ADU, it’s important to check your local zoning laws.

Some areas may not allow ADUs, while others may have limits and restrictions on their size, style, and who can live in them. For example, some housing codes may require that only family members or domestic employees live in the ADU (in which case, you wouldn’t be able to use it as a rental).

Other codes may stipulate minimum lot sizes, a maximum number of occupants per bedroom, and off-street parking restrictions—all of which should be considered.

The key is to do your research upfront, so you don’t have problems after investing time, money, and energy into adding the ADU. Violating city ordinances could result in hefty fines and future problems if you try to refinance or sell the property.

Once you’ve verified your local ADU regulations, you’ll need a building permit no matter where you live. The only time you may not need one is if the structure is uninhabitable and under 200 square feet, which wouldn’t qualify as an ADU anyway.

The best thing to do is to consult a legal professional who understands the local housing regulations where you live and can give you their advice. If you plan to finance the ADU, you’ll want to clear your plans with your lender as well.

 

The Growing ADU Trend and What’s Driving It

 

 

ADUs are on the rise.

 

According to a July 2020 study by FreddieMac, first-time MLS listings of ADUs have increased an average of 8.6% year-over-year between 2009 and 2019. During that same period, ADU listings as a percentage of total active listings also rose from 3.5% to 6.6%.

 

ADU rental listings have gone up, too. From 2003 to 2019, the number of active rental listings increased from 1.8% to 4.1%, and the number of leased rental listings increased from 1.2% to 2.9%.

 

So what’s driving these trends? Several things:

 

The average American household is shrinking. In 2021, the average number of people living in one house was 2.51, down from 3.33 in 1960. At the same time, the average U.S. house size has increased from 1,500 square feet in 1970 to 2,496 square feet in 2019. Many homebuyers today simply don’t need all that space and prefer to buy something smaller instead. 

 

Additionally, many baby boomers are beginning to downsize as they retire and become empty nesters.

 

There’s a nationwide housing shortage. As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. That’s partly because new construction is down due to labor and supply issues brought on by the pandemic. However, construction of entry-level homes below 1,400 square feet has been down since 2008 and hasn’t recovered since. Now, it’s at a 50-year low. With fewer listings on the market, many are choosing to stay with family in multi-generational homes and ADUs.

 

Housing affordability is down. Across the country, housing has become less affordable due to inflation and rising mortgage rates. Many would-be homebuyers are getting priced out of their market and are choosing to rent instead. For some (especially millennials and younger generations), an ADU rental can be an attractive option because it can offer more privacy and outdoor space than an apartment can.

 

Short-term rentals are becoming more popular. More and more travelers are choosing to book stays on short-term rental (STR) platforms like Airbnb and VRBO instead of hotels. According to a 2021 U.S. Short-Term Rental Outlook Report by AirDNA, available STR listings are expected to continue rising as they have since 2019 (aside from the minor slump in 2020 brought on by the pandemic). In addition, many STR guests are interested in properties like ADUs that offer unique experiences. Case in point: The fastest-growing STR property type in 2021 was the tiny house (with a 27% year-over-year change).

 

Government restrictions on ADUs are loosening. In response to many of the economic trends listed above, many state and local governments have passed laws and ordinances that eliminate previous barriers to building ADUs. For example, California has passed S.B. 1069, A.B. 2299, and most recently A.B 2221 to encourage ADUs and prevent local governments from exploiting loopholes to exclude them. This has led to a 1,421% increase in California ADU permits from 2016 to 2021. Other states that have helped lead the adoption of ADUs include Florida, Texas, Georgia, and Oregon.

 

Whether you’re just getting started as a real estate investor or a seasoned pro, ADUs present an exciting new opportunity with no shortage of ROI potential. If you use an ADU for passive income, don’t forget to follow your local zoning regulations, research your market and do your due diligence.

 

If the numbers add up, this could be just what you need to get your real estate investing career off the ground or take one you’ve already built to the next level!

 


 
Robert Schmalz - Broker/Founder
West Los Angeles Real Estate Group,
The Los Angeles Boutique Concierge Realtor®

Location Serving All of Los Angeles From the Mountains to The Sea

Website www.westlarealestategroup.com/

Phone 1-310.505.5571

Email bob_schmalz@wlaregroup.com