Things Change in an Instant

Anyone who's read Black Swan by Taleb knows that this is a black swan event. Very strange, unexpected, and often with a huge impact. This pandemic has upended the floor beneath us and changed "normal" life as we know it, at least for now. 

All we can do is do our best to stay healthy and be decent human beings. And try to stay sane while everything is up in the air and in flux. I know it's hard to isolate, especially in L.A. where today is another sunny, blue sky day. 

Some things I've been doing to stay calm and be prepared for when we see the light at the end of the tunnel:

1. Watch some interesting movies or books online as an escape.

2. Exercise at home, to keep healthy, even if just a few stretches each day.

3. Take vitamins, eat an apple or orange if possible, even boiling the rind for tea.

4. Learn to live on less--only buy sustenance items like food and cleaning supplies.

5. Sort through clutter--get rid of unwanted items, finally organize that closet.

6. Learn to say hello and thank you in 10 languages.

7. Deep clean the place--doing a section a day. (e.g. Today I'll be properly wiping down all the upper cabinets of my kitchen, tomorrow the lower cabinets)

8. Give extra attention to your children--human or furry.

9. Plan your next move in real estate as soon as you get the chance--will you rent, will you sell, will you buy? I'm going to hold and refinance.

10. Lots of tax credits, aid and other important updates coming up for individuals and businesses, and these things are constantly changing so check here often:

https://www.irs.gov/coronavirus

https://www.consumerfinance.gov/about-us/blog/protect-yourself-financially-from-impact-of-coronavirus/

https://www.congress.gov/bill/116th-congress/house-bill/6201/text

Sad Facts About Current LA Real Estate

1. You will likely have to overbid to be in the running

2. Rents are super high everywhere

3. Cash buyers are lowballing and Sellers are taking the bait (but then Sellers do a multiple counter back and drive the price right back up)

4. Unless your budget is about 1Mil (Eastside) and 2Mil (Westside), you will likely be getting a less than perfect looking house

5. Prepare to downsize from what you originally wanted

6. Prepare to expand your search into areas you never thought you'd venture into

7. Prepare to submit noncontingent offers

8. Expect to forego any requests for repairs--Sellers are basically not wanting to deal with buyers who pick apart the property

9. Prepare yourself for a possible rejection or what seems to be an unreasonabl counteroffer to your offer

The Art of Trading Up

A successful stock broker friend told me a long time ago that there's only one rule he lives by: "Buy low, sell high." It doesn't matter that you've bought low now and sold high a year from now, or 10 years from now, it only matters that you bought low and sold high.

This is also the key to real estate. If you do this, then you can really start to rake in that passive income.

But you can't just sell high and spend it all--you need to trade up. If you've made a killing on RE in the past 2-3 years like many of my clients did, nearly all of them ended up with either

1. Multiple properties
2. Multi-family properties
3. A wow factor trade up single family home

The ones that traded up to a larger pad in a better neighborhood will still make a killing because their neighborhood keeps getting better.

The ones that doubled their property portfolio or added multi-plexes into the mix, are now happily collecting passive income that increases every year (not to mention their prop values keep going up due to the LA housing market demand) They've basically turned their first profits into cash cows.

Congratulations to all my wonderful clients who are positioning themselves to retire a little earlier!

If Prices Are So High, Why Aren't People Selling?

Sure there's a lot of equity out there. Owners can make a killing. Then why are so few owners not selling?

Prices are too high to rent. If they sell, the rents are way higher than their current fixed mortgage.

Prices are too high to buy. If they sell, it's hard to upgrade these days unless you move to a different location. Most people might make a lateral move or even downsize, but it's hard to upgrade.

At the end of the day, it's better to own.

Sounds Crazy, But Renting More Affordable Than Buying in LA

The rent increases in LA have been unreal. For $2500/mo, you might find a 650sf studio in Downtown without parking.

If you think Renters have it bad, Buyers actually have it worse. The most recent Home Price Index from CoreLogic showed home prices increased 7% from November 2016 to November 2017.

"Renting is now more affordable than buying a home in the nation’s top 14 most populated counties including Los Angeles County, California; Cook County, Chicago area, Illinois; Harris County, Houston area, Texas; Maricopa County, Phoenix area, Arizona; and San Diego County, California."

Rent prices are also continuing to rise, though, so ultimately, it's still more ideal to own and get into a 30-year fixed mortgage rather than dealing with the 4-6% rent rises LA has been experiencing every year. 

"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

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.

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.

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.

Year End Stats for DTLA

Since the crash in 2008, the market has been steadily increasing in L.A. and downtown in particular. There's a lot of speculation about what's to come in 2017. Interest rates are supposed to be lowered, causing more demand for houses and as a result, prices to continue going up. 

So will it be a good time to sell? 

- Yes. 

Should I rent out my condo?

- If you're planning on renting out your unit, then expect a lot of competition from the many rentals that will be on the market so your place may sit longer than 30 days on the market before getting rented. 

Will it be a good time to buy? 

- If you're planning on holding for 3-5 years then yes. 

- If you're planning on flipping in 1-2 years, then no.

Year        Average Sold Price/SF

2016        $636/SF  

2015        $614/SF

2014        $554/SF

2013        $494/SF

2012        $384/SF

The Upside of "Older" Properties in DTLA

One thing about those 10-year old condos and the 80-year old loft conversions that were done in the mid 2000s is that the square footage of what was selling was a lot larger than the average brand new home today. Nevermind that the price/sf has gone up all over the city. It's that now, 900sf is the size of a 2-bedroom and 1-bedrooms are more like 650sf.

However, back in 2004-2006 when so many lofts and condos were built/converted, the average 1 bedroom was about 800sf. What this means is that if you have a large 1 bedroom, you can think of converting these into 2 bedrooms later on, or marketing them as potential 2-bedrooms. Permits needed, of course.

The moral of the story? Buy a condo or loft that was built 10 years ago if size matters. 

Market Up From Last Year, But Prices Stabilizing

Since the crash, the market has rebounded greatly. Congrats to all my clients who bought in 2010, 2011, 2012, 2013 and 2014! You can rest assured your money was better spent on housing than on stocks. A lot of those who bought in 2015 are also reaping some profits since then though not yet as exponentially. But hold onto the real estate and you can expect more gains in the future. This goes for the Los Angeles market in general.

For those who want to cash out, now is the time. For those who want to enter the market, think long term--like 5-7 years. We're approaching a time where prices are stabilizing as building has started again, and there is a bit more inventory (though still slim pickings in a lot of neighborhoods o LA).

As they say in real estate, sell high and buy two.

Deals in DTLA

With prices averaging about $650/sf in downtown, it's hard to find a "deal" these days. Prices have been increasing since 2009 and are expected to increase a further 3-5% next year. That's unless the interest rates go up then things may finally plateau.

For now, the deals are basically anything under $550/sf. See below:

Flower Street Lofts #115 - 2 bed, 2 bath, 2 parking, 2149sf - $950k (or $442/sf)

Vero Condos #535 - 1 bed, 2 bath, 2 parking, 1120sf- $575k (or $508/sf)

Grand Lofts  #A602 - 2 bed, 2 bath, 2 parking, 1740sf - $920k (or $528/sf)

Elleven  #406 - 1 bed, 2 bath, 2 parking, 1700sf - $910k (or $535/sf)

Eastern Columbia  #M11 - 2 bed, 2 bath, 2 parking, 1830sf - $999k (or $545/sf)

Micro Dip in Downtown + Neighborhood Market Conditions

There's no question it's a seller's market right now in downtown. We're up from 2007 prices, inventory is low, and the area keeps evolving into an exciting destination. We've gone from the low of $300/sf to about $625/sf on average today. And while the prices are pretty stable, there have been some price drops. Bidding wars have slowed down and the units that have been priced in a greedy way have shown price drops. Buyers who've been looking are not having to overbid as much. We don't know how much this micro-dip will last, but in any case, Sellers still hold the power right now because the inventory remains low.

In the near future, South Park will be getting the most condo inventory because of condos like TEN50 and Metropolis coming on the market--and everyone wants the latest and greatest.

Historic Core and Financial Districts remain desirable because of low inventory and lots of business regeneration (The Bloc, Grand Central Market).

Arts District is one of the hottest areas due to low inventory, but there are tons of apartments being developed. Good for condo owners, not as great for investors.

Little Tokyo is still very hot due to the location next to the Arts District and all that River Development.

Fashion District is the next up-and-coming neighborhood. Lots of conversion activity from derelict buildings to live/work lofts, plus the development of THE ROW just a few blocks away is going to be a game changer.

Skid Row adjacent, which is essentially the Little Tokyo Lofts and other artist rental lofts, are benefiting from the Fashion District activity.

The Cost of Buying and Selling a Condo

Price goes up, you sell. Price is right, you buy. Sounds simple, but there's more to it. There are closing costs involved on both sides, and this is something that your realtor should go over with you.

SELLERS:
In a nutshell, the average expense to sell a home is about 2% of the sales price. So on an $800k sales price, you're looking at about $16k in escrow fees. This comes in the form of transfer taxes, escrow company fees, doc fees, etc. Then there's the agency commissions. So while you might think there's $200k in profits to be made, remember that anywhere from 2-8% will be shaved off in fees.

BUYERS:
For buyers who are getting a loan, closing costs are about 3% on an $800k purchase price. You're looking at $24k approximately. Most of these are loan and title insurance fees, and these are IN ADDITION to the purchase price. So if you have barely enough to put down on a place, know that you're going to need at least a 3-4% buffer due to these closing costs. Cash purchases cut out the loan and title insurance fees so suddenly you're only needing about .05-1% in closing costs.

About DTLA Prices and the Investment Potential

Been a busy several months, lots of buyers snatching up the best units quickly since the inventory remains very low. The best units (meaning ones with at least a few of these: corner, higher floor, lots of light, views, building with amenities, parking) are definitely getting multiple offers and driving prices even higher than they should be. Sellers should be realistic and know that just because a unit sold for X price, it doesn't mean their unit will go for the same price/sf. The unit orientation, views, etc. all matter. In fact, there have been some larger units that have sold for less than smaller ones because of the views or layout.

The fact remains, DTLA prices have been climbing, but so have rents. Every year there's an average jump of 6-8% in rent prices in general. And on top of that, no rent control.  It's no wonder investors love DTLA.

Ridiculously High Rents in DTLA

People are really starting to balk at the ever increasing rents in DTLA. Seriously, we are in the $3-$4.50/sf range. What's justifying the high rents is the fact that people keep renting! Why is this happening? A few reasons:

1. DTLA has gotten so popular as a livable, walkable area, people are willing to spend a larger portion of their income on rents.

2. A growing number of residents have high income as evidenced by the demand for luxury rentals and condos in the area.

3. Housing prices have increased so much so that priced-out buyers have no choice but to rent for longer, keeping rental demand high.

This means that it's a great time to invest in DTLA if you plan on renting the place out. If you're planning on buying, then expect to have to hold on to the property before seeing significant gains, since price increases are expected to slow down.

Sneak Peek of Upcoming South Park Condo - TEN50

First time since the Ritz Carlton was completed in 2012, new construction condos will be available for sale in downtown Los Angeles. Developed by Trumark Urban and designed by TEN50 is located on Grand and 11th, in the prime area of South Park, just a few blocks from the Historic Core and the Fashion District. Target move-in is November 2015. Contact me to preview the floorplans, amenities and finishes.

Just some of the highlights:
- Infinity edge pool
- Outdoor yoga deck
- Theater/Media room
- Corner Penthouse units
- Boutique style building
- Bertazzoni induction range, Bosch ovens, Liebherr refrigerators
- 24/hour reception
- Parking and storage

 

(Rendering from Photographer of TEN50)

(Rendering from Photographer of TEN50)

(Rendering from Photographer of TEN50)