If you are looking to invest, one avenue you may be considering is becoming a landlord…
But as you begin to explore the possibilities of land lording, you may be wondering:
Are investment properties worth it?
Will having (potentially bad) tenants, collecting rent, and fixing/making repairs be worth the hassle of owning a rental property?
Generally, owning property is a good investment because of three reasons:
- homes tend to increase in value (known as appreciation)
- you can fix them and build equity (known as forced appreciation)
- They are a potential nest egg for your future.
However, when considering making a property investment in Los Angeles one must ask themselves:
What are the risks and dangers of owning investment property in Los Angeles?
The Real Estate Market/Economy
Particularly as it relates to property in Los Angeles, is much different than it was 20 years ago.
The population of Los Angeles is not growing very fast whilst the price of homes continues to increase.
This means that mortgages are a very difficult investment to make right now. This is because the price of homes has continued to rise and with this continued rise in property, the mortgage prices will also continue to grow which will ultimately raise the risk of default.
The rise in defaults has also increased the number of foreclosures in Los Angeles. The Los Angeles housing market is growing at an increasingly faster rate than the increase of incomes.
This has resulted in Los Angeles housing becoming out of reach for many of those whose income does not reach the threshold of high end income earners,like teachers.
If you own investment property that you intend to sell in Los Angeles is it crucial to look at what the risks and dangers of owning investment property are.
With the current state of the economy it is likely that it will take a few months to successfully complete the sale.
If you are unfortunate enough to time your sale wrong, you are likely not to get a fair market value for your property.
Another risk of owning investment property is the interest and principal parts if your mortgage might be fixed, there is no guarantee that your taxes or insurance will not increase at a faster rate than you can increase your rental fees.
You may also face another risk with tenants, particularly if this happens to be the tenant from every landlord’s nightmare.
This nightmare consists of a very needy tenant who is very demanding, pays their rent late, and does not take any water and energy preservation measures and who destroys the property which continues to decrease the value of your property.
Tenants are a danger to your property as if you are unlucky enough to get a tenant with a destructive nature, your property may become a liability with the continuous need to make repairs.
Location is everything.
The neighborhood in which your property is in could also be dangerous to your property investment.
If your neighborhood flourishes so does the property, particularly if your property is well maintained.
Should your neighborhood become dangerous the value of your property can decrease significantly.
If you invest in investment property and you intend to rent out, a risk might be failure to get a tenant leasing your property.
Failure to get a tenant means you have no income coming in and all the mortgage payments will be out of your own pocket.
The continuous increase in property prices in Los Angeles will also affect rental fees as it may be next to impossible for you to get a tenant who can afford your rental fees.
Undercutting your fees could also then affect your pocket because you will then have to make up the outstanding fees and or expenses that may arise i.e. negative cash flow.
So at the end of the day the answer to the question, are investment properties worth it, comes down to what are the risks and dangers of owning investment property in Los Angeles?
There are several risks and dangers to owning investment property in Los Angeles but it essentially all comes down to the return you can get.
Your returns must be higher than any other returns you could make on other investments like bonds or dividend-paying blue chip investments.
It also must be worth the time energy and effort (and stress) that comes with owning investment property.
If you’re like many (including myself) you may ultimately decide it isn’t worth the hassle to own a rental.
If that sounds like you and you’re thinking, “I want to sell my house fast ,” well you’re in luck!