Some Of Us Are Wishing For a Bubble

This is crazy, but I've heard more homeowners and renters wish for a bubble lately. Yes, even homeowners. (Note: these are the same folks who bought in the crash and will do it again every time--I know I would).

When things crashed, there were many jumping ship, and just as many were clamoring to scoop up one, two or more properties. It sounds like crazy speculation but really, it's logic. These same properties at the crash were selling for crazy low prices such as $200-400k. Previously they sold for double those numbers. When you know that demand for these homes were there at double the price, why wouldn't you buy that property when it's half the price?

That's the past, and with no real bubble in sight for the next 2-3 years, prices are high. Some say it's unsustainably high, but that's all relative. Our friends in NY and London and SF are laughing at LA prices because they are so "low." In fact, folks from these cities are buying a second home in LA.

So what hope is there when inventory is low and prices are high and you want an investment property or a first home because renting sucks?

Two things:

1. You have to take advantage of the still very low interest rates

2. You have to give up the fantasy of buying a 3+2 in Silverlake or a 2000sf loft in DTLA for $600k.

Hot areas that are half dumpy but cleaning up:

1. Frogtown
2. Atwater Village
3. Glassell Park
4. El Sereno
5. West Adams
6. Leimert Park
7. Lincoln Heights
8. Garvanza
9. Hermon

Areas that people say are hot but will probably take 10+ years to see ROI:

1. Boyle Heights
2. East LA
3. Inglewood
4. Compton
5. Cypress Park (Some parts)

Areas that are so hot, it's over:

1. Echo Park
2. Mt. Washington
3. Montecito Heights
4. Highland Park

As Long as Inventory is Low, Prices High, and Yet People Are Still Buying

Interest rates are now up to 4.4% for a 30-year fixed--it was 3.95% just a few months ago. Normally, this causes some slowdown. But things aren't normal. Inventory is unusually low. And the increase in the interest rate wasn't enough to scare off buyers.

This means that prices are still high. So why are people still buying? Because homeownership can be pretty lucrative if you can wait out low cycles. The average home owner has a net worth of $195,400 while the average renter has an average net worth of $5,400.

Plus you aren't subject to the pains of having to deal with annual rent increases. Or awful landlords. And you can make changes to your property. You can AirBnB your place if it's a single family home. You can add roommates. And you can deduct your mortgage interest and property taxes. And best of all, if you've done a 30-year fixed loan, your monthly "rent" won't change for 30 years!

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!

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.

Buy, Sell or Hold?

Downtown (and LA in general) prices are up, per usual, inventory is low, and it's a Seller's market. Prices have well surpassed the 2007 height, and are now beginning to stabilize due to the holidays.

So what to do, BUY, SELL or HOLD?

Assuming you have equity, if you need the cash to upgrade, relocate or just to have liquid for whatever, SELL. It's a good time because prices are higher than ever before and buyers are pent up because inventory has been low for at least 12 months.

If you're buying to invest in the short term, don't. If you're buying to invest in the long term, then BUY. Prices are high, but they are going to be stabilizing into next year, so if you're planning on holding for a while (5-7 years) or you're sick of renting (I predict rental prices will continue to increase again next year in DTLA), then BUY. Why pay a landlord when you can pay yourself while gaining equity?

If you are not planning to do anything with the equity money, then HOLD. DTLA is getting lots of good investment in terms of qualified resident buyers, businesses looking to expand, companies relocating, and developers that are looking to be in one of the most unique parts of LA (e.g. The Row, At Mateo, Oceanwide Plaza). This will only help continued growth and revitalization.

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. 

DTLA: A Good Investment Or Not?

It sure seems like it is. Take for example, my client who bought in Little Tokyo in 2012. They were told by everyone they knew that they were crazy to buy when the market was still in the dumps. What they found out through me was that the condo they were interested in was going to be surrounding by a slew of new upscale development, so if they were investing, now was the time. Today, their condo has $220k in equity, is cashflow positive by $1200/mo, and rents out in about 2 weeks each time they put it on the market (because it's heavy on the student ratio, and students tend to leave every year, meaning the owners can charge market rental rates each time they have a new tenant since most of the properties in DTLA are NOT under rent control. Sweet investment).

Another client bought a loft in 2014, after living in a rental for 2 years and was getting sick of paying his absentee landlord increased rents every year. He wasn't thrilled that the market had gone up quite a bit when he bought his pad, but decided it was the lesser evil than continuing to pay his landlord. Today, his place has $100k in equity and he is paying himself, not a landlord.

A friend of mine from NYC just bought a DTLA investment pad in 2015, because she felt that she was only just now able to see some substantial investment in DTLA, making her confident about the area. Back in 2007 when everyone was buying like it was going extinct, she waited to see if there would be more growth in residents and necessary amenities to sustain residents, such as supermarkets and restaurants (smart girl). We low-balled and offered to pay for some piddly services such as termite, HOA docs, and Home Warranty, and she got the pad. It's now worth about $85k more than she bought it for.

It's 2016, and several buyer clients are looking for choice properties in DTLA--meaning large size, top floor, good views. Size will be a big deal in DTLA in the near future. What was once considered too small for a 1-bedroom is now considered huge. Nearly all of the new developers are chopping up the units, and the average 1-bedroom is now about 610sf, while back in 2007, the average 1-bedroom was 900sf.

When investing in DTLA, low price is always good, but you also need to look out for what will become the rare, coveted attribute in the long term because this is what will add further value.

DTLA is in the Top 5 Most Expensive Places to Rent in Los Angeles County

According to Zumper, DTLA has among the highest median rent prices for 1 bedrooms, even topping Beverly Hills and Bel Air. From highest average prices:

1. Santa Monica -$3160
2. Ocean Park - $2700
3. Venice - $2560
4. Marina de Rey - $2520
5. DTLA - $2410

Those looking into investment properties should be looking into DTLA. And did I mention no rent control as well?

California Housing Forecast for 2015

Good news for homeowners: according to a study by the California Association of Realtors, the annual median price for 2014 rose 9.8 percent year over year and will further increase by 7.1 percent in 2015.

SOLD - Art Deco Icon Meets Modern Luxe - Eastern Columbia Loft #806

South facing unit in the iconic Art Deco Eastern Columbia building, developed by The Kor Group. The unit features beautiful banks of windows, polished concrete floors lots of sunlight. Comes with 1 parking space, and building amenities include a 24-hour concierge, gym and fabulous rooftop pool. Walkable to Spring Street, Ace Hotel, Umami, Figaro, Alma, Pellicola, Sparkle Factory, Grand Central Market, and more. Listed for $729k with 1120sf of space. This building is also Mills Act approved.

Buy Low, Sell High

It seemed that not long ago, shortsales and foreclosures were the norm. Those who borrowed badly lost out, but DTLA fans made a killing buying up properties that were oftentimes half of what the previous owners had paid. Now that we're pretty much back at the height, many happy owners are following the old investing adage: buy low and sell high. The really savvy owners are buying low, selling high, and then buying two. Recent client scenario: he sold high, and is using his sizable net profit for downpayments on two properties because borrowing is so cheap right now. He will live in one and rent out the other. And guess what? Because rents are so high, the tenant will end up paying for my client's mortgage, with some extra cash flow to boot. The plan is to hold onto both properties for the next 6-10 years, then sell one off when the value goes up. Seriously, everyone should be doing this.

What about those who didn't buy low? You do the other savvy thing: buy and hold. Then in 6-10 years, when the skyline of downtown has become littered with luxury condos and double the amount of restaurants and retail, then you can sell and upgrade or buy some vacant land to sit on :)

Snatched Up Within the Last 30 Days

Things are moving in DTLA. Good stuff is moving fast. If you missed out, better luck next time.

Douglas Loft #4B

Barker Block #540

EVO #2304

655 Hope #1002

Eastern Columbia #1005

Biscuit Lofts #305

Gallery Loft #2

Luma #1102

El Dorado Loft #707

El Dorado Loft #1106

SOLD - Spacious Industrial Loft in Art District South - Toy Factory #615

Arts District live/work loft that is a true warehouse conversion featuring polished concrete floors and stainless steel appliances. The building boasts a rooftop pool and gym--both with views for miles, lower rooftop courtyard and a full gym. Located across the street from Church & State, Daily Dose, Pour Haus, Little Bear, Urban Radish, Zinc, and just a couple blocks from Bestia, Stumptown, Bread Lounge, Blue Bottle Coffee, Factory Kitchen, etc. This pristine loft features upgrades throughout, and great natural light from massive windows. Listed at $849k for 1428sf of space. Has 1 bath and 1 parking space.

The Ever-Changing South Park Neighborhood

DTLA gets more well-rounded by the year. The majority of DTLA used to be historic buildings with a decent amount of 60s as well as 80s buildings that were developed along the financial district environs. Now there are sleek skyscrapers going up everywhere, and it's hard to keep up. South Park, with its large number of flat ground-level parking lots has undergone the most significant, skyline altering changes in recent years, and with every new building since 2009, the values of resale condos and loft has increased and rents continue to soar. What's fueling all this is the amazing development are projects such as The Ritz Carlton, The Courtyard Marriott, Fig & Central, where the Roberto Cavalli Club is set to be, and Metropolis, the luxury condo and hotel compound that will kickstart an influx of luxury boutiques coming in. It's also what's making South Park one of best investments.

L.A. Rents Will Continue to Rise in 2015 and 2016

Unless you are renting for a ridiculously priced, nicely maintained property in a great location that is under rent control, it's not easy to be a renter these days. From Venice to Mid City to Highland Park and Downtown, rents have been steadily increasing and are expected to keep rising in 2015, and up to 8.2% by 2016, according to the USC Casden Multifamily Forecast.


This tells us that it's good to be a landlord. And downtown has no rent control on most of its buildings, which makes it even more appealing. Explains why so many people have investment properties in DTLA--the renters are essentially paying for their landlord's mortgage.

DTLA props under 300k...

Back in 2012, and even the early part of 2013, you were still able to find several lofts for under $300k. Sure they were small, mostly in buildings without parking or amenities, but they were out there. Present day, there are just 2. One is in a building with lending issues, and the other is TINY and borders skid row. You'll have to venture to the surrounding areas or up your budget. It seems that $400k is the new $300k. Next year, prices are expected to continue to rise.

SOLD - Beautiful South-Facing Loft - Eastern Columbia #1005

This is a spacious south facing unit in the Art Deco Eastern Columbia building, developed by The Kor Group. The unit features beautiful banks of windows, polished concrete floors lots of sunlight from the east. Comes with 1 parking space, and building amenities include a 24-hour concierge, gym and fabulous rooftop pool. Walkable to Spring Street, Ace Hotel, Umami, Figaro, Alma, Pellicola, Sparkle Factory, Grand Central Market, and more. Listed for $699k with 1120sf of space. This building is also Mills Act approved.

Pros & Cons of Buying During the Holidays

Do I wait til 2015 or do I take the plunge now? Some pros and cons to buying at this time of year. Surprisingly, it's mostly pros.

PROS

• Less competition with other buyers because many will wait until next year
• Interest rates are slated to increase in 2015
• Close before December 31, and get awesome tax breaks in time for 2014 taxes
• Spot things you might not otherwise see such as leaks due to rain
• Get deals on properties that have been sitting on the market
• Sellers can get desperate if they want to close before the end of the year

CONS

• Less inventory than say, spring or summer
• Properties may not initially look as good if the weather is drab or raining

SOLD - Immaculate Open Plan Industrial Loft - Barker Block #246

True live/work loft for lease in the Barker Block building. Designed by The KOR Group, the building boasts a lovely rooftop pool and gym--both with views for miles, courtyard areas and an art exhibition breezeway. Plus it's directly across the street from Urth Cafe, perfect for that morning coffee run. The open floorplan loft features a mix of concrete walls, dark hardwood floors exposed wood beams, open space kitchen and living area. Listed at $565k for 980 sf of livable, workable space. Includes 1 assigned parking space. Walk to Stumptown, Urth, Zinc, Blue Bottle, Wurstkuche, Little Tokyo, Pie Hole, Bestia, Church & State, Little Bear and more.

DTLA Properties Under 500k

First-time buyers to DTLA are often wanting to "try out" the area with an investment property first. Here are available condos/lofts under the 500k range. With rental prices averaging about $2.75 and up per square foot, you can have a tenant pay for your property if you've got 25-30% to put down on a 30yr fixed. And this includes prop taxes and HOAs.

Douglas Lofts - 700sf - $465k - (Front desk security, 1 assigned covered parking space)
El Dorado Lofts - 848sf - $478k - (Front desk security)
Mura Condos - 810sf - $499k - (2 assigned parking spaces, storage unit, pool, gym, concierge, BBQ)
1100 Wilshire - 670sf - 499k -  (2 assigned parking spaces, pool, gym, concierge, media room, BBQ)
Market Lofts - 754sf - $469,900 -  (1 assigned parking space, pool, gym, concierge, media room)
Higgins Lofts - 750sf - $430k -  (rooftop deck)
EVO Condos - 750sf - 495k - (1 assigned parking space, pool, gym, lounge, concierge, BBQ)