Tax Reform & Real Estate - Basic Things You Need to Know

Overall thoughts: Buyers getting a loan of more than $750k will be hit. This will affect the sale of properties with loans above this amount as some buyers may have become reluctant.

1. Effects on the immediate housing situation:

2. Current homeowners are in the clear. But from 2018 on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This $750,000 is across multiple homes, not per home. So if you wanted to buy two homes with a 500k mortgage each, you will have 1Mil in mortgage debt, and you can only deduct 750k of that.

3. Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.

DTLA To Get a Condo Development That Will Start in the $300s

Not a typo. The newest development to break ground will have units starting in the $300s. Yes, in this market. The condo building is called Perla, and located in the condo-starved Historic Core of DTLA, on the northern end of Broadway. Presales to start at the end of 2018.

There's a catch of course. They will be small by L.A. standards--around the 400-500sf size for the ones priced in the $300s. I think it's one of the smartest moves by a developer to disrupt what's going on in Downtown currently. There is pent up demand for housing that is more affordable, and at these price points, those shut out of the market completely due to prices averaging $700k, will now be able to get something to own instead of blowing money on rent. This is also addressing a growing number of urbanites who just want a home base and require a lot less space.

Neighbors include Grand Central Market, Blue Bottle Cafe, Spring Restaurant, DTLA Vets, Birds & Bees, Klaxons and more.

Housing Shortage Causing High Prices to Remain Steady

Things should be slowing down on housing prices. It should be, but it's not. It's not that LA is invincible--we all know that a financial crisis can affect every city. But the fact is, that there is a housing shortage. And where there is a larger demand, prices will be high. A few years ago, I was very bullish about buying, but that's because prices and loan rates were at historic lows. Today, loan rates are still super low, but prices are high, and to add to the mix, there is a massive housing shortage. The laws of supply and demand say this should lead to ongoing high prices. Some are saying to buy now because the shortage will continue. Others are saying that a dip is imminent. It's hard to say who's right at this time.

This according to LA Times writer Steve Lopez:

 "Today, home ownership in California is the best investment any of us will ever make, thanks, in large part, to a scarcity of housing. The pace of construction has not kept up with population grown and demand, so those of us with houses own a staggering amount of equity wealth that grows even as those without homes pay a higher price for survival.” 

Landlords in DTLA - Rental Market is Evolving

A while back I had "predicted" that the rental market in downtown will see a softening. This is true. It just took a little observation to come to this conclusion. Tons of new rental-only buildings coming on the market in downtown. So it's only natural that the those of us with rental units are going to have competition. And yes, this is causing the units to sit longer and in some cases, cut prices.

The gist is this: If you are a condo owner in a newer building (meaning not a historic building), then chances are you're going to have to do better to get your place rented. Do some light remodeling and updating. Put in a kitchen island. Freshly paint the walls. Put in nice window treatments. Do something, because the new stock on the market such as Oakwood, 8th and Grand, Windsor, Atelier, G12, etc, are newer and flashier. I know for a fact that just a little tweaking and your condo is just as marketable as any of the new stuff.

Rentals in historic condo buildings (e.g. Rowan, Eastern Columbia, Barker Block, Biscuit Lofts, Toy Factory) are steady, simply because there are so few historic rental buildings in general. What exists is what exists, unless we get some more conversions.

Close to DTLA, Yet Well Under $1Mil

It's still a Seller's market. Prices are high, lots of buyers, nicely maintained properties are still getting multiple bids, and inventory is super low. 

And yes, I'm going to go there. I'm actually using $1Mil as a benchmark for affordability. These are the times we live in, in L.A. (Keep in mind our Norcal neighbors are laughing at these affordable prices.)

Despite the gloom and doom news about home affordability (some of which is true), certain pockets of the city are still in high demand and the buyers can actually afford what they're looking for. Some DTLA owners are opting to rent out their DTLA pad and try out a house with a yard in these pockets or buy an investment to AirBnB.

Some excellent up and coming neighborhoods where values are still rising due to proximity to DTLA and other major hubs, and prices on average are under $1Mil.

Highland Park 

Glassell Park

Montecito Heights

Lincoln Heights

Hermon

Monterey Hills

El Sereno

Garvanza

West Adams/Jefferson Park

View Park/Park Hill Heights

DTLA Pocket Rental Alert: Gorgeous Loft w/ Concrete Floors at Eastern Columbia

Gorgeous 900sf loft for lease at the famed Eastern Columbia building on 9th & Broadway. Beautifully maintained with stainless steel appliances and a Kelly Wearstler designed bathroom. Open plan layout with views to the south. Concrete Floors, 11 foot ceilings, and comes with 1 parking space. Within 3 blocks to Ace Hotel, Whole Foods, Terroni, Peking Tavern, Pattern Bar, Freehand, The Exchange, Cos, CVS, Loit, Verve, IL Cafe, Om Nom, Ralphs, Wood Spoon, New Moon, Tuck, Wild Living and more.

Asking $2800/mo. Available Oct 1, 2017. Call for a details. 310-869-2655

"Not Paying Some A**hole's Mortgage"

I ask all my buyer clients why they've decided to buy. A client of mine who just bought a small house in NELA had told me it was because he was sick of paying rent to a Landlord who was a piece of work. After the relationship had continued to get worse and his non-rent-control house increased to $3200/mo, my client decided that was it. No more paying someone else's mortgage.

He ended up buying a house where his PITI (principal, interest, taxes & insurance) equated to about $3350/mo. For $150 more per month, he is now paying himself to own a place in which he can paint, remodel, add onto, landscape, and park 24/7. 

With prices what they are currently, it's difficult to own for cheaper than you rent. We aren't in 2011 anymore. But sometimes the peace of mind and pride of ownership is worth every penny. 

Plus he gets to write off a mortgage interest and property taxes, and rent out the detached studio as an AirBnb whenever he wants. And he's still close enough to the neighborhoods he frequents, which are DTLA, Pasadena Glendale & Atwater. 

Minimum Salary Around $100k to Afford a Home in LA

Using the National Association of Realtors’ data on housing affordability, Business Insider gathered a list of the US metro areas where the minimum salary required to qualify for a mortgage, after a 20 percent down payment, is highest. What they found was that the salary needed to qualify in the top-five metro areas — four of which are located in California — exceeds $100,000.

Here’s what it you need to be earning to buy in New York, Miami and Los Angeles.

The New York-Newark-Jersey City, New York/New Jersey/Pennsylvania metro areas ranked 13th overall in BI’s list. With a population of 20,182,305 and a median home cost of $414,000, the salary you need to buy is $76,613.

The Miami-Fort Lauderdale-West Palm Beach, Florida, metro area ranked down at number 20. With a much lower population of 6,012,331 and median home cost of $335,000 the salary a sunshine state buyer needs is $61,994.

Meanwhile in Los Angles-Long Beach-Glendale, California weighed in at number seven. The population is 10,170,292 and the median home cost was $514,000. That means that the salary you’ll needed to buy is $95,156.

If you were wondering about what metro area took the top spot, well, that would be San Jose-Sunnyvale-Santa Clara, California. The salary needed to buy there was calculated to be $218,996. 

TRD

Condo Prices Stay Stronger Than SFR Prices

As housing prices continue to climb, condo pricing is among the strongest, and where are the highest concentration of condos? DTLA of course. Condo prices in Downtown LA rose 2.4 percent in the first three months of this year, according to Douglas Elliman.

From January to March, condos in DTLA sold for a median price of $599,000, up from $585,000 in the same time period last year. And, the average DTLA condo spent 67 days on the market—a drop from 82 days in the first quarter of 2016.

There's a huge reason as to why. People are getting priced out of the SFR market, and condos often have a more affordable price point. For instance, a 1 bed condo in WEHO with nice amenities could cost you about $650k, while a 2+1 home will cost about 1.1k. The discrepancy is price is huge and you're not always getting a whole lot more for that upcharge.

In DTLA, you can snag a condo with nice views and parking and amenities like a pool, gym, lounge, concierge, for about $700k. You'd have to plunk down about $850 to get a semi-decent remodeled 2+2 in Highland Park, and you may not even have a garage.

The second reason is the upkeep. Condos are relatively headache free--just maintain your AC unit and keep the plumbing in good shape. While a house needs regular maintenance for the roof, basement, gutters, landscaping, etc, and this isn't for everyone. 

Still a Seller's Market

While "days on the market" are averaging about 30-45 days in DTLA, it's still a seller's market. The problem lately is that sellers are pricing too high. They think that the price of their condo is 25-50k more than the market value. This is causing buyers to disregard those properties or low ball. The worst scenario is when in escrow, the appraised value is lower, so the seller is often "forced" to lower the price or the buyer backs out. Not a good situation.

That said, properties are still selling though they aren't being snapped up within days.

We're at the highest price points in the last 10 years so is it a good time to sell? If you've made a killing, then yes, it might be time.

It's Been a Long Real Estate Wave in DTLA, and Still Going

Crazy to think that prices have been increasing in DTLA (and most of LA for that matter) for about 270 weeks straight. Prices went up exponentially between 2012-2014, then less exponentially from 2015-2017. But still, prices kept going up.

In downtown, even with all the construction of condos and the increase of apartments for rent, the fact remains, there's still not enough inventory to buy, causing demand to remain high. True, properties are sitting on the market longer, average about 60 days, mainly due to the higher prices and lending restrictions, but they do sell in the end.

DTLA has reached a critical mass where now I'm getting contacted by DTLA homeowners who want to buy a second property as an investment. People who already own in the area want to own another, and that's hugely telling. It's a desirable place to live, and the rents are even more desirable.

One key change from about 7 years ago: You'd buy an $900k property and expect to rent it out at $2000/mo. Now, you buy a $900k property and expect to rent it out for about $3500/mo.  The math pencils out much better.

Hence the influx of people from NYC, Chicago, SF buying either a second home or investment property because it's still affordable compared to those areas. And yet it's reminding them of Brooklyn, SF's Mission or Wicker Park in Chicago a few years ago. Heck, even Detroit...nuff said.

Pocket Listing Alert - 1 bed + 1.5 bath, 1050sf luxury high rise pad

Bid before it hits the market.

Stunning pad just steps to Staples Center and LA Live, 

Whole Foods, Ralphs, The Bloc, Ace Hotel, etc. Asking $715k. 

Email reinventingdtla@gmail.com for viewings.

Currently, the Better Bet is on Buying Instead of Renting

If you're in a rent controlled apartment and you're paying about $1/sf, then you should probably stay put. You might still want to buy an investment, but you really should keep your apartment because $1/sf is too good to throw away.

However, if you're renting somewhere around $3/sf, which is about $3000 for a 1000sf pad, then it might be a better bet buy while interest rates are still at historic lows. Reasons why:

1. Interest rates are expected to hike up at least twice in 2017, then again in 2018. I don't think we'll be going into the 5% arena but it could go up to about 4.65% for a SFR.

2. If you're in a rent-controlled building, then the Landlord can hike up rents 2-3% per year. If you're in a non-rent controlled building, then the Landlord can raise the rents to whatever the market rate is after your lease is up.

3. If you get a 30-year fixed mortgage, then your "rent" is fixed for 30 years. Duh.

4. Rents are so high in LA right now, that if you ever decide to keep the home and rent it out, it's likely that someone else's rent money will pay for your mortgage. No brainer.

Pocket Listing Alert - Eastern Columbia Rental

 Enclosed 1 Bed, 1 Bath, 1130sf, 
South Facing with Bonus Storage Room for $3500/mo
310-869-2655

Why are Prices Still High?

Seriously, doesn't it seem like prices aren't stopping their climb? Because no one is selling. Inventory is super tight and as usual, there are too many buyers.

Here are some reasons why:

1. Believe it or not, some people are still underwater on their mortgages. From the height of 2007, there are a good number of homeowners who borrowed way over their limits and are just barely getting into the black now, but with the costs of selling (transfer taxes, escrow fees, etc), they will still be in the negative. That Echo Park home bought in 2007 for $750k is now worth 815k. After selling fees, you're netting about 0.

2. They can't afford anything else after the sale. Prices are high, and in a high market, unless you really downsize from a single family to a condo, or to Phoeniz AZ, you really aren't making a difference in your expenses. Plus rents are ridiculously high now. It's almost cheaper just to stay put, which is what so many are doing. You can sell your Miracle Mile house you bought in 2007 for 950k for 1.1MM. You've made 150k plus whatever down you put in. That's great, but cut 70k in selling fees. What are you going to upgrade to? Not much. You're going to have to either buy a small 80s style condo in West LA or a studio with a doorman in DTLA for about 600k.

3. Boomers and Empty Nesters, the ones with the homes with lots of equity, who should downsize, are not selling because their children (well into their 30s) are still living with them.

4. Rents are super high. Recession or not, rents have stayed strong in LA. When the housing market collapsed beginning in 2008, the amount of renters increased. To be a renter these days (unless you've lived in that 1940s RSO pad in Santa Monica since 1980 and are now paying $600/mo), is tough. More renters are trying to buy because they are realizing that just adding $200-$300 extra per month could get them a mortgage instead. Hence, more buyers to the market.

Pocket Listing Alert - 2 New Rentals!

Chic Loft at Elleven $2600/mo for 960sf

 

Immaculate loft at the prestigious Elleven building in 

the heart of South Park. Stainless steel appliances, 

separated bedroom area, huge storage closet with 

side by side washer/dryer. Hardwood floors throughout! 

1 assigned parking space included. 

310-869-2655

Million Dollar Views at 1100 Wilshire

$2700/mo for 790sf

Views to the ocean! Beautifully appointed loft with  

frosted glass separation to the bedroom. Bamboo floors,  

2 closets, spacious bathroom, Bosch W/D in the unit.  

Comes with 2 parking spaces in the garage.

310-869-2655

Prime Units and Penthouses Available in DTLA

I mentioned in an earlier post, that in a market with low inventory, it's really hard not to settle. But settling is for short term holds. For a longer term hold on the property, it's best to snag a property that will still be desirable in any market.

Below are available condos that are desirable even in down markets, and why.

940 E. 2nd St #38 - $1.759M

Formerly "Barn Lofts"

WHY: Arts District location, historic pedigree, over 2300sf of space on multilevels, 

rare townhouse style home with parking included.

849 S Broadway

WHY: Historic core location bordering South Park and Fashion District, unique 

Mills Act building with unparalleled amenities for a historic building, attached parking.

#M1 - $1.13M

#202 - $799k

#206 - $799k

#512 - $1.358M

#1210 - $3.98M

PH#1 - $2.385M

PH#2 - $2.475M

PH#4 - $1.799M

1111 S. Grand Ave PH#6 - $1.375

WHY: Central within South Park, larger than average size lofts because it was one of the first ground-up developments in SouthPark, LEED certified building, 

nearby just about everything in DTLA, full amenities.

1850 Industrial #710 - $1.875M

Biscuit Company Lofts

WHY: Uber hot Arts District South, Mills Act building with historic pedigree, 

amenities and in-building parking.

OFF MARKET RENTAL - Eastern Columbia #610

Chic loft with concrete floors, designer bathroom, balcony, upgraded appliances, etc. 1200 sf. 1 parking space included. Asking $3700/mo.

Warm and Inviting Brooklyn Brownstone Style Loft at the Eastern Columbia

Eastern Columbia #202

Enjoy downtown living at its best in this warm, inviting, and charming loft at the famed Eastern Columbia building. Mills Act also gives home owners up o 70% off property taxes. Acne, IL Cafe, Mykita and Om Nom in the building, as well as Ace Hotel, Whole Foods, APC, Umami, Wood Spoon, Stocking Frame, Cooper Building, etc just a couple blocks away. Asking 799k.

Open House 3/14 between 11am-2pm or call 310-869-2655 for showings. 

Glut of Lease Only Buildings Will Make Condos More Valuable

The downtown skyline is full of cranes--nothing new. But a big part of what's being built are apartments for lease only. What about all the condos that people want to buy? All the investment in shopping centers (At Mateo, The Bloc, Fig 7th, Oceanwide Plaza, The Row, etc.) but few condos available.

A shakedown is going to happen. I feel it, and it's going to be a good one.

Condo owners will see continued appreciation over time due to basic supply and demand. Some of those condo owners who own property that's being rented out, will have rental competition to deal with. These folks are going not like the competition and unload their condos to the long line of buyers who want it to be their primary residence. (That said, there will always be investors in downtown because it is not under Rent Control Ordinances) This is going to create healthy appreciation with stakeholders who live in DTLA, which is the long term goal for a city center.

An Impressive Eastern Columbia Penthouse Coming on the Market Soon

Johnny Depp may have had 5 penthouse units at the marvelous Eastern Columbia, but there's another coming on the market that is larger, has better views, and more outdoor space. The 4-story Penthouse is over 3000sf, making it the largest one at Eastern Columbia.

Beautifully maintained and situated on the Northwest corner of the building, with its own skylight, it is the best Penthouse ever to hit the market in a historic Mills Act building! Will be asking 3.9MM.

What to Look Out for in a High Market in DTLA

Gone are the days of just snatching up lofts because they were there for the taking.  The prices are going up and the inventory is still very low, keeping prices even higher. So many downtown homeowners are here to stay--with so much now at their doorstep, it's become one of the most exciting places to visit and live. The dilemma for most buyers is inventory is low, prices are high, and it's a risk to wait in case the market goes up.

In these times, you need to look out for the following if you're in the market to buy. If you can get 2 or more of the following ticked off, then you're doing well;

1. Units that have upside potential. Rather than buy a completely remodeled place, look for one that needs some rehab. New kitchen or new flooring perhaps. Or bathroom remodels. Even something as minor as new lighting. By you adding 10k-20k, you can add 50k in value.

2. Look for buildings with great amenities. There are a lot of new lease-only buildings on the market with top notch amenities. That is your competition. A building with amenities is going always have some value.

3. Buy in a building that offers parking. Enough said.

4. Buy a unit that has something unique and special, like a great city view, or overlooking the park. Or one that has an extra bedroom nook. Or that has a balcony. It's hard to get it all without spending over 1M, but if you can get into a unit that has one or two special features that other units don't have, it's going to add value.

5. Buy in a building that has good development around it. Meaning retail, office space, grocery stores, parks, hospitals, Metro access, etc.