You need to Think About Buying Now, Rental Increases in Los Angeles are Alarming

I speak to many people about buying.  However, many of them are scared.  They think that they can’t afford it, and think it isn’t possible.  They are in paralysis mode when it comes to buying a house.  However, you don’t need to put a lot of money down, and if you are realistic in what you want, you can find it.  The inventory is there if your expectations are aligned.

The same can’t be said for renting here in Los Angeles.  Some argue that the rental increases and forecasted increases here in Los Angeles are a bigger issue for tenants.  Here are four reasons why it is an issue:

1. The space is being used other than for traditional renting: Why rent a place for $2,000/month when a homeowner can charge $100/day for Airbnb. This is tightening the rental choices for tenants, thus increasing demand and prices.
2. There is no third party to verify the value: When buying a property with a loan, a licensed appraiser goes out to the property to determine a valuation.  This is added protection to the buyer.  There is no one to do that for tenants.  If a landlord wants to rent the property out for $5,000/month and someone is willing to pay it, then it is a done deal, regardless of what other properties are renting for in the area.
3. Population for Los Angeles is still growing, and so is the tenant population: More and more people are moving to Los Angeles all across demographics. As a matter of fact, last year the population of Los Angeles hit just over 4,000,000; with the primary driver being millennials (click here for the article from LA Weekly).  And they need a place to rent before they make the move to buy.  This coupled with limited supply, creates one crazy market.
4. If you have poor credit, it can hurt your chances: With limited supply, landlords have the option to be picky on who they pick as tenants.  What makes this interesting is you have a higher chance of buying a property with an FHA loan then you do renting an apartment.  Think about that for a second.  You can have a credit score of 580 and have a better chance of buying than getting an apartment.

Buying a home is important.  Over the long run it can save you money because you have a fixed mortgage versus rising rents, and you gain an appreciating asset.  Now is the time to consider buying, keep in mind it doesn’t have to be your dream home.  That can come later on in life when your income rises and your property appreciates where you can sell, pull equity out as a down payment, or keep it and rent it out for additional income.  No reason you can’t be a landlord.