Real estate investing news and advice!

Only 37% of Los Angeles residents own their homes. The remaining 63% rent. Compare this to California’s rental rate of 44%, or the national average rental rate of 35%, and it’s clear that LA is a culture of renters. 

And this rental culture is becoming more deeply ingrained. According to US Census data, 54.5% of Angelinos rented back in 2000. That was still a high renter vs homeowner rate for the time. But this rate has steadily risen, with no reversing trend in sight. 

In this article, we will explore Los Angeles’ rental culture to learn why the percentage of renters is dramatically high and growing. Then we will consider the implications for real estate investors in the LA market.    

With median sales prices in LA hovering around $1 million, it takes a lot of cash to afford a home. Even those who find a $600,000 starter home and qualify for a 3% down conventional loan will need around $50,000 cash to cover the down payment plus closing costs. With a median household income of around $77,400, $50K is a lot of money, particularly when the cost of living is so high in LA.

But it’s not just the upfront cost proving a barrier to entry for today’s would-be buyers. It’s also the skewed financial ratios caused by student loan debt. The average student loan borrower owes nearly $30,000 on their student loan debts, creating both a cash flow issue because of the student loan payments and a debt-to-income ratio issue for potential mortgage lenders. 

Furthermore, we’re starting to see generational renters. Research shows that children who are raised in rented homes or apartments are less likely to believe homeownership is a realistic possibility for them as adults. 

Even as these obstacles continue to make homeownership less accessible, there is also a shift in the mindsets of many younger renters who prefer the flexibility of renting to the stability of ownership. The freedom to move with a month’s notice is of value to those who appreciate change and regularly seek new experiences.     

The high (and growing) rate of renters, combined with the high (and growing) rental rates, make Los Angeles an attractive market for real estate investors. And clever investors are finding ways to capitalize on LA’s rental culture. 

For example, some investors are focusing on the co-living market by developing multi-family properties specifically for households with three or more roommates. Roommate-friendly design features like comparably-sized bedrooms, separate bathrooms, and large common rooms are in high demand by renters looking to save money by splitting the rent several ways. 

Other investors are capitalizing on the need for family-friendly units. With the California housing shortage making it difficult for young families to find single-family homes for rent, more apartment buildings are catering to families by including onsite playgrounds and adding more 3+ bedrooms in their unit mixes. 

Seeing the increasing trend of long-term rentals and the profitability potential of multi-family investments, more investors are turning to real estate syndication to serve renters while capitalizing on high-yield opportunities.

Syndication pools capital from multiple investors to fund a single project. This allows investors to buy into a high-value deal with a fraction of the upfront capital they would need to acquire a property alone. Syndication is the future of multi-family investing.  

The rental culture of LA is here to stay. Don’t miss out on the opportunities it provides.

The housing market never stays the same for long. Demand and supply rise and fall constantly. Even seasonal changes are noticeable. Like, homes sell faster and for more money in the spring and summer than in the winter and fall. 

So because of these constant shifts, people are always trying to “time the market”, right? They want to buy low and sell high. But there are a few things wrong with that:

Think back to the peak-pandemic housing market - a lifetime ago, I know. LA County homes were averaging around $900k. Interest rates were still at a crazy-low 4%. That left new buyers with a mortgage payment of around $3,470. 

That was about the time people started crying housing bubble, and claiming the market would implode. So, some investors decided to wait for a “market crash,” expecting to get a steal when prices dropped.

But what has actually happened?

Well, we have seen a market correction. During the winter lull, LA County home prices hovered around $715,000. Sounds like a dramatic dip, right? But, because of the 6% interest rates, the monthly mortgage payment for these “market crash” buyers is $3,463.

That’s right. These buyers lost out on two years of rental income to save $7/month.

Now look, today’s buyers are still going to do just fine! They’ll start earning that passive rental income and watching the value of the property grow over the long term. In fact, since they bought at a lower price point, they’ll probably see their equity rise faster than those who have to recover from the value dip. 

The point is…it doesn’t really matter when you buy because it’s always a good time to buy real estate!

Interest rates are low? Cool - that means you’ll spend less on interest expenses. Home prices are low? Cool - it’ll be easier to come up with the down payment and you’ll probably see strong equity growth.

There are good deals to be had in all market conditions. So if you’re interested in investing, take the leap now. As the saying goes, “Don’t wait to buy real estate. Buy real estate and wait.”

In many housing markets across the country, a million dollars could buy a small mansion. But Los Angeles is a high-value market. And $1M isn’t what it used to be.

Pre-pandemic, the median sales price for homes in Los Angeles was $741,000 (as of January 2020). By January 2023, the median sales price was up to $921,750. This means that $1M in 2023 will buy you a slightly better-than-average home in the average LA neighborhood. 

As of March 14, 2023, there are 68 single-family listings for sale within LA city limits with an asking price between $995,000 and $1,000,000. These range in size from 740 square feet to 3,229 square feet. They include everything from one-bed, one-bath condos to five-bed, three-bath homes. The oldest was built in 1895, and the newest is still under construction. 

These listings are spread throughout the city from the Porter Ranch in the north to San Pedro in the south, from the Pacific Palisades in the West to Boyle Heights in the East. Naturally, home values vary dramatically by neighborhood. What $1M buys in Downtown LA will be very different from what $1M buys in Beverly Hills.   

Several factors, like size, layout, condition, and views, impact home values. But no other factor is as important as location.

In the Pacific Palisades, for example, the median sales price is $3.3M, but you can find small one-bed, one-bath condos available for just under $1M. There are also mobile homes available in the Palisades for under $1M (currently listed for sale between $600,000 and $800,000).

In Downtown LA, on the other hand, the median sales price is sitting at just $595,000. A million dollars downtown could get you a spacious two-bed, two-bath condo downtown. But, with fewer single-family homes built in that area, you’re less likely to find an SFR for $1M in that neighborhood. 

If you’re looking to purchase a single-family home for around a million dollars, the San Fernando Valley may be a good option. In Northridge, for example, the median sales price is $960,000. A $1M budget can get you a comfortable three-bed, two-bath home with a garage and a small yard.  

Some LA neighborhoods are so exclusive that there are no residences available under one million dollars. 

Take Bel Air for example. The median sales price in Bel Air is $2.8M. The lowest-priced residence is a 1250-sq-ft 2-bed, 2-bath, listed at $1.25M. There is a vacant lot listed at $595,000, but most vacant lots are also priced at over $1M.

There are a few neighborhoods in Los Angeles where the most recently calculated median sales price is right around $1 million:

●      Highland Park: $1,022,500

●      Hollywood: $975,000

●      Northridge: $960,000

●      Valley Glen: $949,000

●      Cypress Park: $907,000

The median sales prices reflected in this article are from the first quarter of 2023. Since home prices around LA tend to increase in the spring and summer, it is likely that values will be going up in the coming months. Then you can expect another dip as we enter the fourth quarter. 

The good news for buyers is that values have come down a bit since the peak in the summer of 2022. However, with LA remaining in high demand, there is no market crash on the horizon. If you are interested in investing in Los Angeles real estate, now’s the time to do it. 

Ok, so there are several differences between an investor and a business owner…

Take time and effort for example. While the owner is actively working on the business, spending 40 hours a week (or 60…maybe 80 hours in the early days), the investor gets to swoop in with a quick wire transfer, then get on with their lives until payday. 

Or consider responsibility. The pressure of making the business successful falls on the business owner. If anything goes wrong, no one could possibly blame the investor! It would be the owner’s fault. The buck stops with the owner. Good owners know this and respect it. That’s why they spend every day doing everything in their power to make sure the business succeeds! 

But today, we want to talk about another difference between an investor and a business owner that doesn’t get enough credit…

The investor gets paid first, and the business owner gets paid last.   

That’s right. When the proceeds come in, the investor is the first one to receive their cut. 

The business owner doesn’t get paid until everyone else on the list has gotten theirs.

So, the business owner takes on all the responsibility for the business idea and day-to-day operations. Plus, they’re the ones working insane hours to make the business a success (and keep it successful). And they only see the rewards of their efforts after all the other stakeholders have gotten their share. 

Investors, on the other hand, put up some funding, then kick back and wait for their passive proceeds to roll in. 

Want to make sure you’re in line to get paid first? Become an investor!

With rising interest rates, high inflation, stock market volatility, and uncertainties in the real estate market, we want to give you some insight into what our focus for the upcoming year will be, and explain how Gatsby’s property types continue to perform exceptionally well despite cooling market conditions.

Gatsby follows market trends closely, and our focus in 2023 will be on two specific short-term investment types: 

Both types will be built-to-sell, with time frames ranging from 6 to 24 months. This gives you a chance to grow your money while hedging against inflation, without tying up your money for a long period of time.

Here is a closer look at how each of these investment types works with the changing market conditions of 2023.

HOUSE FLIPS:

Gatsby’s house flips have a unique value-add proposition. Not only do we complete a full remodel of the main house, but we also build a brand new ADU on the property. This separate housing unit can provide future buyers with a residence for guests, aging parents, adult children, or as an on-site rental unit to generate passive income. Properties with ADUs are in exceptionally high demand because of the options they give buyers.

Additionally, Gatsby focuses on entry-level properties with affordable price points. Affordable homes are the most in-demand properties in Los Angeles. Therefore, even if property values are in a temporary state of decline, these in-demand properties are most likely to hold their value. 

This strategy for meeting the high demand for affordable single-family homes with ADUs continues to make Gatsby’s flip projects incredibly successful. Most of our completed properties in the past year sold in under 30 days for more than the asking price!

MULTI-FAMILY DEVELOPMENTS:

Gatsby also has a unique strategy for developing multi-family properties. It starts with recent changes to zoning laws that were enacted to address the housing shortage in Los Angeles. 

Southern California now allows certain single-family lots to be converted into multi-family developments to create more housing in central areas where it is needed most. This means we can purchase a single-family home, tear it down, then build a multi-family property on the lot. By turning a single-family home into a multi-family development of 4-10 units, we are able to maximize the return potential to our investors! 

Another benefit of multi-family developments is that the sales price is based on rental income, which means multi-family listings are not as reliant on market conditions as single-family homes. Even if home values are dipping, rental prices generally remain steady (or may even increase). And buyers will look at these rental rates to determine the value of the property.

By tailoring our investment strategies to match buyer demand and capitalize on local legislative changes, Gatsby is able to consistently outperform the market!

To learn more about our investment opportunities, please contact us to schedule a call with one of our knowledgeable investment specialists. 

We look forward to serving you in a prosperous 2023!

Since inflation affects the value of the dollar, inflation will cause the value of your savings to sink. Understanding how inflation work is crucial in order to know how to beat it.

 

In simple words, inflation is an increase in prices or expenses over time. The rise in prices is often expressed as a percentage with the average year by year inflation rate of 3.27%. However, inflation recently hit a 40-year high.

According to the Bureau of Labor Statistics (BLS), in June 2022 inflation measured by the consumer price index (CPI) increased 9.1% over the prior 12 months. This is the highest inflation rate we have had since 1982.

 

 

Inflation rises when the Federal Reserve sets the interest rate too low or when the growth of money supply increases too fast. 

 

High inflation can also be a result of a hot economy where people have extra cash and want to spend. If consumers are buying lots of goods, businesses may need to raise prices because they are lacking supply, or simply because they can increase their profits due to the high demand. 

 

Some inflation is important for a growing economy, but too high inflation rate is a sign of an imbalanced economy. 

 

 

Inflation causes a loss of purchasing power over time, which means your dollar won’t be worth as much tomorrow as it is today. 

 

With rising inflation, everything from groceries to cars become more expensive, and it may be harder for individuals to afford everyday essentials. If your income doesn't increase by at least the same rate of inflation, your salary will equal to less value than it did in the previous year. The same concept goes for your savings. If you are keeping money in your bank account, the money will lose value to inflation over time.

 

 

The best way to keep up with inflation is to keep your money invested. The primary benefit of investing during inflation is to preserve your portfolio's value. The second benefit is that you can continue to grow your money. 

 

Real estate is an ideal investment vehicle during inflation. Real assets naturally keep up with inflation since properties appreciate in value over time. With short-term, value-add real estate opportunities from Gatsby Investment, you can grow your savings while also serving as a hedge against inflation.  

We talk to investors every day, and the majority of them are very focused on their Return On Investment (ROI). This is very understandable, and it should be a key factor to look at before making any investment. However, most investors forget about the importance of their “Return On TIME Invested.”   

Let us give you an example. Let’s say you have decided to invest in a house flipping project yourself. You are going to handle all renovations from start to finish and try to get the highest return possible. You have done all the due diligence needed and have purchased a home to transform. Now, you need to start the design and permit process, find all vendors, complete the remodeling, and then finally put it up for sale. Let’s say your project went very well, you sold the house, and you ended up with an ROI of 20%. 

Now, let’s look at a different example. Let’s say you decided to invest passively in a house flipping project with a syndication firm, instead of completing all the work yourself. The syndicate has all systems in place, with experienced professionals handling every detail of the house flip project from start to finish, and you can make your investment online with a few clicks. You didn’t put any work in, and by the time the house sold, you end up with an ROI of 15%.

Which one really generated the best Return On Investment? The first example where you did all the work yourself had a higher ROI%. But you need to take your time and effort into consideration as well! If you calculate the time and work spent to complete the project, was all that worth an extra 5%?

With the passive investment option, you leveraged the knowledge, time, and skills of real estate experts, so you had all that time and effort to put somewhere else. This is the biggest difference between ROI vs ROTI.

Always consider your “Return On TIME Invested” when making your next investment.

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Wealth gives you financial freedom and more options in life. Many parents strive to build wealth in order to create a better future and for the generation coming after them. But building wealth that last generations is not an easy task!

Did you know that an estimated 70% of generational wealth doesn’t make it past the second generation? And 90% disappears by the third generation!

Let's say you work hard and invest your money right in order to pass down assets to your children. But how can you then balance the challenge of giving them financial freedom and also teach them to be financially responsible adults that understands the value of money? 

Here are a few ways to build sustainable generational wealth:

Education can provide a way for your children to support themselves. A degree will allow them to pursue higher-paying jobs which can help them navigate their own personal finances. 

Raise your children to become financially independent and responsible adults so they know how to handle money by the time they leave the house. Education is one of the key factors to consider if you want the wealth to last. 

 

 

Real estate is a great way to build and sustain generational wealth long-term. Properties appreciates in value over time and provide steady cash flow from rental income. 

Building a diversified real estate portfolio that can be passed on to generations is one of the most reliable ways to grow and protect wealth. It is a great hedge against inflation, and since real estate is a hard asset, it is also one of the safest investments you can make. 

 

 

If your interests and abilities align with your children’s, it is possible they will want to take over the business you built one day.

Over 30% of family-owned businesses are estimated to have made it to the second generation. It is a good idea to get your children involved in the business at a young age to teach them how the business operates and how to successfully continue the business. It is also a good way to encourage them to want to take over the company one day.

4. Teach Your Children About Personal Finance

 

Knowing how hard it is to keep the wealth for multiple generations, it can seem pointless to save for a legacy of wealth. However, this can be prevented through financial education. If you don’t teach your children about financial literacy, then it is likely the wealth you leave for them will dwindle throughout their lifetime.

 

Be open about financial topics at home, buy children books about finances, include them in financial discussions, and let them listen to you talk through financial decision. 

 

 

A trust is a legal entity you can use to hold and transfer assets to your beneficiaries. It is a great option to consider for parents of minor children. Trusts also provide benefits such as avoiding or reducing estate and gift taxes depending on the size of your estate.

Bottom Line 

The process of building wealth is challenging in itself. But with education and proper estate planning, you increase the chances of wealth to last. Make it a priority to pass your financial knowledge down to your children. This knowledge will be the best way for you to build and protect generational wealth.

BY JOSEPH PIMENTEL EL SEGUNDO

PUBLISHED 10:57 AM PT NOV. 22, 2022

EL SEGUNDO, Calif. — With so many people unable to buy their own homes in this current market, real estate investors are capitalizing on a growing housing market segment: renters.

J.P. Morgan Global Alternatives is teaming up with El Segundo-based real estate developer Haven Realty Capital to acquire and develop more than $1 billion in new build-to-rent communities, the companies announced last week.

Joint venture officials said J.P. Morgan's $415 million equity investment would "provide long-term capital for Haven to continue to execute its business plan in the BTR space, working with homebuilders."

"The for-sale housing market has been significantly hampered by recession fears, inflation and rising interest rates, placing a burden on homebuilders and their ability to add to the housing stock," said Sudha Reddy, the founder and managing principal at Haven. 

Reddy said the partnership would allow them to continue working with homebuilders, many of whom will sell the newly built community to Haven to lease to residents. 

The joint venture's partnership and $1 billion target highlight the growth and high demand for build-to-rent communities across the U.S. The number of single family build-to-rent homes under construction has increased 106% year-over-year, according to Fixr.com, a home remodeling news site.

Citing data from RentCafe, there are more than 13,900 build-to-rent homes currently under construction in the U.S. 

The coronavirus pandemic, historically low mortgage rates and low supply created an inflated housing market that shut out many first-time homebuyers and prospective buyers. 

The red-hot housing market has dipped in recent months since mortgage rates have increased, but affordability remains a crucial issue for many prospective homebuyers, leaving many to renting. 

RentCafe officials said some of the main reasons for renting single-family homes over apartments is that it provides more space and privacy. It's ideal for families.

Based in El Segundo, Haven Realty has a $1.2 billion portfolio of 35 communities, totaling 3,500 units across nine states in various construction phases. 

Haven Realty officials said they plan to leverage their existing relationships with homebuilders.

Officials said the joint venture would target 50 to 200 homes, ranging from 1,500 to 2,500 square feet, primarily with three- and four-bedroom and two- and three-bathroom floor plans, including two-car garages.  

The joint venture has already targeted three communities, totaling approximately 250 homes in the Atlanta area. That acquisition expects to close within the next 90 days, officials said.

"We're pleased to be able to partner with Haven to continue to provide the attractive, newly-built, larger single-family homes for rent that more and more American families seek," said Ryan Holgan, executive director, Real Estate Americas, at J.P. Morgan Asset Management.

1. POWER OF COMPOUNDING

Compound interest is growth earned on growth. This implies that as your principle grows, you will earn more money in each cycle. By continuously reinvesting your investment earnings, you are exponentially increasing your return on investment.

 

Sometimes life presents us with incredible opportunities that necessitate capital backing. Opportunities arise periodically in life, and when you have capital on your side, you can seize them and expand your wealth.

3. RETIREMENT

Your employment will provide for you until you reach a particular age. Allow your retirement to be everything you have envisioned it to be. Work towards creating a pool of resources, so that finances are the least of your concerns at an older age.

Once your goals are set, you may devise an investment strategy to achieve them. Take your existing assets, reserves, and cash flow cycles into consideration as you plan your investments. While it is important to plan for the future, you should also enjoy the present!

5. FINANCIAL FREEDOM

Money is the means to an end - not the end itself. Achieve financial independence so that you can focus on things that are actually important to you. Invest one step at time. After all, slow and steady often wins the race!