Investing in any kind of real estate is almost always about location. You don’t have to be an expert to know that. Location matters when you’re buying a home to live in. It matters when you’re buying a home to rent out.
If you’re thinking about investing in a Los Angeles rental property, we can tell you that this is a smart way to build your wealth and generate passive income. However, it requires careful consideration and research to identify the best locations to invest.
Los Angeles is a unique market. It’s expensive and competitive, even when real estate seems to be slowing down elsewhere. Los Angeles has a lot of diverse neighborhoods, well-qualified tenants, and unique nuances that investors need to understand if they want to find success here.
Choosing the right location for investing in a rental property can be overwhelming. You don’t have to be an expert, but you do have to have some sense of who is renting where. We’re helping you navigate Los Angeles neighborhoods today, sharing some of the most important things you need to know.
Establish a Budget and Investment Goals
Before considering investing in rental property, it’s essential to know your financial goals as well as your investment goals, and it’s especially important to establish a budget. The budget will likely dictate which neighborhoods are good for you and which neighborhoods may be out of reach. You need to know how much money you’re willing to invest, how much rental income you’re seeking, and how much cash flow you expect to generate. This information will help you narrow down your options and find areas that are affordable while providing the potential to generate a significant return on investment.
Start by deciding how much you can afford to pay for an investment property in Los Angeles. The purchase price will dictate many of your financial decisions, including the type of property that you can afford, the financing options you can access, and the Los Angeles neighborhood in which you’ll invest.
Once you know what you’re willing and able to spend, you’ll have to budget for those upfront costs, such as inspections and insurance. You’ll want to partner with a Los Angeles property management expert and you should expect to pay your real estate agent or broker a commission. There will be closing costs, appraisal fees, and title costs. These expenses need to be worked into your budget.
The rental income you can expect to earn will depend on the neighborhood in which your property is located. It’s important that you make the connection between what you spend and what you’re likely to earn. Budget and investment goals will have a huge impact as you navigate Los Angeles neighborhoods and prepare to invest.
Los Angeles Neighborhoods and Rental Properties
In Los Angeles, there are specific neighborhoods that are more ideal for rental properties. These might be closest to schools and workplaces, easily available to public transportation and amenities such as gyms, restaurants, coffee shops, and grocery stores.
- Neighborhoods such as Westwood, Downtown Los Angeles, and Santa Monica feature excellent transportation, job opportunities, and conveniences such as restaurants, parks, schools, and shopping centers. These neighborhoods and areas always experience high demand, making them excellent locations for rental properties. Renting out a property in Santa Monica or Venice Beach, you’ll find that you have plenty of tenants who want to live there.
- Property type will also influence where you buy. As you’re navigating Los Angeles neighborhoods, think about whether you’re more interested in single-family homes, small apartment buildings, or units in larger new-construction condo communities.
- Another essential consideration is the crime rate in your potential investment neighborhood. Los Angeles has neighborhoods where crime has lately become a matter of concern. You’ll have to think like a prospective tenant; they want to feel safe where they live. This can affect the demand for rental properties. By researching the local crime rate, you can prevent future financial losses and protect your investment.
Additionally, it’s essential to know the population growth and trends of the areas you’re considering. Some neighborhoods are experiencing high growth rates and others are watching as residents and even homeowners decide to move elsewhere.
Investing in communities with high population growth rates can lead to higher demand for rental properties, which translates to increased rental income. Some of the current neighborhoods that are experiencing growth, especially among renters, include Silverlake, Koreatown, and Hollywood. Los Angeles as a whole may be losing residents, but there are pockets and areas with rising populations, making them good investment locations.
Where Does Your Ideal Los Angeles Tenant Want to Live?
We told you to think like a tenant, and you have to know who that tenant is. It’s critical to consider the age range and demographic of your targeted renters. Los Angeles has diverse neighborhoods with various cultural compositions, making it important to choose the right neighborhood that fits your targeted renters.
If you’re casting a wide net and hoping you’ll get renters from various backgrounds and demographic groups, we’d tell you to consider neighborhoods like Venice, Echo Park, or Highland Park. These are described as emerging neighborhoods, but they’ve actually always been popular, especially among younger tenants and active adults who enjoy culture, nightlife, and art scenes.
Investing in rental property is smart, especially in a market like Los Angeles, where there’s a lot of diversity and opportunity for your property to increase in value. However as you’re shopping around as an investor, you have to adopt a location-based strategy to maximize your returns.
Los Angeles, with its diverse neighborhoods, provides numerous investment opportunities if you’re willing to research and take a location-based approach. By following the tips mentioned here, you’ll be well on your way to finding the perfect neighborhood to invest in and generate long-term rental income.
Remember to always do your research and consult with local real estate experts to make an informed decision before investing in a rental property. We’re here for just that purpose. Contact us at Earnest Homes.