Should You Invest In Los Angeles Real Estate?

Quick Hits: If you’re planning to buy a home, do it now, because prices are going up for the next few years. Investments in single-family rental properties have weak potential because of high home prices. Apartment developments have the best potential in LA County. Mortgages have higher risk even though prices are rising. Best bets for investments in retail or restaurants are in Riverside County.

The LA economy is different than it was. In the last twenty years it’s lost a half million manufacturing jobs, many in the aircraft business. Tourism picked up some of the slack but at lower pay, and many jobs now revolve around services to the a population of 17 million that’s increasing very slowly. Healthcare is the fastest growing industry. The demographics are different too; 48 percent of residents in LA County are Latino, 14 percent Asian, a third are immigrants.



The population isn’t growing very fast, but home prices are – that’s partly because LA is running out of room. Growth is mainly in the cheaper, outer communities in Riverside and San Bernardino. Home prices were up 30 percent in the last three years – although it’s difficult to separate real home sales from the boom in foreclosed subprime properties. Whatever the cause, you can expect prices to go higher in the next few years, so don’t wait if you plan to buy. In LA County, prices are up the most in West Hollywood, the least in Torrance.

Home prices are high compared to rents, except in Riverside-San Bernardino, which makes single-family rentals a difficult investment except in special circumstances. Overall, high home prices force the majority of people to rent, and rents are high compared to incomes. This makes apartment buildings a good investment – at the right price – and encourages investors to cut single-family homes into multiple rental units. LA County, with the highest percent of renters, has the best investment potential, Riverside the lowest.

Mortgages are a difficult investment right now. Because home prices will keep rising the next few years, the equity cushion for new mortgages will grow quickly; on the other hand, prices are already too high, which means these mortgages will have a rising risk of default. Just because the last bust is over doesn’t mean a new one isn’t around the corner . Lenders should back away from high loan-to-value mortgages during this period. The same is true for construction loans; new projects should be financed in very careful stages.


Article posted on on June 21st.