Homes in NELA are popular, but “generation rent” means many residents don’t care to buy. Millennials’ aversion to ownership means opportunities for landlords.
Real estate in Pasadena, Eagle Rock and Highland Park has been a hot commodity for years. Homes for sale in Glassell Park and Mt. Washington and Glendale have been snatched up not only by those wanting to live in one of these great communities, but also by those investing in income property.
According to Lending Tree, the online loan company, Millennials in Los Angeles have a low propensity for buying homes compared to their counterparts across the country. As of early 2016, just 36.27% of the generation of adults born since 1980 own a home or condominium, with the average age of purchase at 30 and the purchase price being around $360,000.
To investors, this is an opportunity to be a landlord to the remaining 63% of that age demographic. But just because owning a home or apartments in Mt. Washington, Glassell Park or Hermon can be profitable for a long-term owner, that doesn’t mean it’s some form of vulture capitalism on the part of the investor.
Many Millennials have an income sufficient to make a down payment but their interests are elsewhere: they don’t want the restrictions of ownership. If a job opportunity comes up across town, in Northern California or across the country, they would rather pull up stakes easily and quickly. This same idea of non-ownership is evident in the sharing economy of Uber, AirBNB, ZipCar and Metro Bike Share. Simply put, they like to rent.
So what does it take to buy and own residential income property? Aside from having the money and credit worthiness to manage it, consider the following factors that successful landlords take into account:
Positive cash flow: You want rental revenues to exceed costs – ALL costs. Or if it doesn’t achieve that, you will have sufficient external income to cover shortfalls (which you would tolerate if you anticipate a sufficient appreciation in the property value over time).
There will be unbudgeted expenses: If the property is mature, anticipate more maintenance costs in roof repair/replacement, fixed boilers and other building mechanicals, things that just break due to inattention or tenant abuse, plus plumbing, landscaping, appliance replacements, etc. Before making an offer on a property, quiz the current owner (through an agent) about what upgrades have been made to the property in the past 5-10 years. Their answer will tell you two things: what is relatively new and not a worry, and how much they’ve had to spend on maintenance.
Know your market: Check the Zillow Rent Index for where you consider buying. This isn’t a guarantee but an indicator. For example, a 2-bed, 2.5 bath 1,225 square foot new build townhome in Highland Park rents for around $2,725/month. In Garvanza in close proximity to Occidental College, a 4-bedroom vintage single-family home rents for $3,200/month. A renter should expect to pay $5,000/month for a renovated 3-bedroom, 2-bath Craftsman home in Eagle Rock.
For some pricier properties the renter might be older than a Millennial, sometimes a family temporarily located to the Los Angeles area due to the primary breadwinner’s occupation. Regardless, a would-be landlord should speak with a qualified Realtor such as Tracy King, who works primarily in the NELA section of the city.
With over 30 years experience in helping clients buy and sell homes in Northeast Los Angeles, Tracy King has a depth of real estate knowledge that makes her the go-to for both the first-time home buyer and the seasoned real estate investor. When she's not holding open houses or negotiating offers, Tracy enjoys wine tasting, cooking, or planning her next trip to Paris. If you are looking to buy or sell a home in Northeast Los Angeles, contact the Tracy King Team at 323.243.1234 or firstname.lastname@example.org.