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.
Homeownership is Both Less Accessible and Less Appealing
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.
Implications for Real Estate Investors
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.
The Future of Investing in Multi-Family Real Estate in LA
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.