Amazing Deals in DTLA Right Now

SOUTH PARK

Flower Street Lofts #123

A double-story, 1423sf loft with 2 bathrooms and 2 parking spaces for $439/SF. 

Unreal, this is like 2012 prices. Asking $626K.

KW, Joseph Iulucci

ARTS DISTRICT

Barker Block Lofts #131

Double story 2+3, 2830 super loft with 2 parking spaces. Priced at $521/SF.

Asking $1.475M

Compass, Thomas Atamian

SOUTH PARK

Market Lofts #412

2+2+Den, 2 parking spaces, 1460SF

Within 2 blocks of The Bloc, Whole Foods, 10 min walk to Crypto.com Arena, etc.

Asking $799K

ReMax, Art Avaness

FASHION DISTRICT

Cornell Lofts #602

1+1, 740sf, 1 parking space, Mills Act

Calstar, Jasmen Vartanian

FASHION DISTRICT

Textile Lofts #901

2+2, 1 parking space, 1 private storage unit, 1370SF, Mill Act

Stunning corner unit with massive factory pane windows

KW, Pete Buonocore

It's Time to Get Real About 2023

Let's face it, selling as-is, 20% over asking and within 7 days, is so 2021. 2022 has been humbling to a lot of sellers, and the ones that were aware of the softening market, and the obvious outcome of doubling interest rates, still won out. These sellers priced accordingly, prettied up their properties, staged them, and still sold at or above list price before the market fell further. 

And there will be more slowdown in 2023. I don't think there will be a massive contraction, but unless there is a big interest rate cut, the housing market will stagnate. Don't get me wrong, there are still a lot of wannabe buyers out there, but the rates are hindering them, and the recent price slowdowns are not enough to get them to make the move just yet. 

So if you're needing to sell, upgrade to a larger house, sell to relocate, etc., it's time to get real. Be prepared to pay for rate buy-downs for buyers, spend a couple thousand on painting or staging, and at the very least, declutter. And be real about what's going on in the market. Just because your neighbor sold for $1M three months ago, doesn't mean that your similar property is going sell for the same or more 3 months from now. 

ULA or the "Mansion Tax" Passes, Effective in March and April 2023

Measure ULA has passed. It is called the "Mansion Tax" as it affects properties, residential or commerical, valued at more than $5M. 

Editorial: Measure ULA is the best gift Karen Bass could get as mayor - Los Angeles Times (latimes.com)

Here's what you need to know:

Beginning March 1, 2023, for City of Santa Monica property owners and April 1, 2023 for City of Los Angeles property owners, two new tax measures will have a significant impact on all Real Estate transactions valued at $5 million and above. Please take a quick moment to read the following information regarding these tax measures, which both passed during the most recent election in November. If you've considered selling and your property is valued at more than $5M, you might want to consider selling before these dates.

Measure ULA, a new tax law specific to the city of Los Angeles, will take effect on April 1st, 2023:

Properties sold at $5 million or above will incur a total transfer tax of 4.6% (additional 4% tax), and properties sold at $10 million or above will be taxed a total 5.7% (increase of 5.5%).

Measure GS, a tax law specific to the city of Santa Monica, will take effect on March 1st, 2023:

Properties sold at $8 million or above will be taxed a total of 5.7% (an 833% increase).

This tax is on the sales price, so it doesn't matter what you paid for it. For example, say you bought a multifamily building for $2M ten years ago. It's now worth $6M. If you sell after the measure takes effect, you'll now be paying an extra $276K. Yikes. Let's say it's worth $11M now. If you sold for that price, you'd pay $627K. Double yikes.

This applies to both residential and commercial real estate, but incorporated cities such as Beverly Hills and Malibu are not included. At the point of sale, the one-time tax will be deducted through escrow, regardless of whether the seller is taking a loss on the property or not.

For small landlords whose livelihoods depend on their apartment buildings, this is harsh.

The Net Worth Required to Be in the Top Wealth Tiers

 According to Kiplinger's recent research, these are the tiers of the Net Worth of households. Remember, net worth is all assets minus all liabilities. If you have a house worth $800K, a $600K mortgage, a paid off car worth $10K, and credit card debt at 5K, then your net worth is $205K. If you rent, lease a car, and have $20K in the bank, and $10K in credit card debt, you have a net worth of $10K.

Anyway, according to Kiplinger and the Net Worth of households here in the US:

Tier / Required Net Worth

Top 1%  / $10.8M

Top 2% /  $2.5M

Top 5% / $1M

Top 10% / $800K

Top 50% - $500K

And don't forget, that two-thirds all net worth comes from home ownership!

Buy Down Your Interest Rates and Get the Rate You Want

Once markets shift, people get creative. We're in a 6.75%-7.25% interest rate range right now. While this is WAY higher than last year, it's still only 1% higher than it was in 2007. That said, did you know you can ask the seller to buy down a mortgage rate? Yes, in this climate and depending on the house and the builder, you can ask the seller to pay a point or two. This is pretty damn amazing, and the little loophole that buyers can use to get rates from a few months ago. I just did this for a buyer recently, and the seller didn't even argue.

Some criteria:

- Must be primary residence

- Approved for condos, 2-4 units, SFRs

- 30 year fixed only (no ARMs)

- Borrower will still need to be preapproved and qualify 

Interest Rates Set to Rise to 9% in 2023

To those who are waiting and waiting and waiting...Given 2023 projections are even higher, this week's rates around 6.8% seem low. And don't forget that is is pre 2007 interest rate levels. The 30-year fixed is around 6.8%, while a condo 30-year fixed is more like 7.2%. It's interesting with the rate of inflation around 8.5% currently (lots of economists say it's more like 12%), housing is still considered a hedge at the moment, particularly income housing since rents are NOT dropping.

And remember, you can always refinance! Oh yeah...

To AirBnb or Not? That is the Question.

With hotel costs continually rising, AirBnb, VRBO, etc are killing it too. So many people are wanting to take that step towards renting out their place via AirBnb rather than a steady annual lease--why? Because you make so much more gross income with AirBnb. Like up to 4 times as much in certain markets. But there's also a lot more costs and headaches involved in managing an AirBnb. Are you ready for the reality?

- You have to kit out the place (please hire a designer so that the place doesn't look like a college dorm) and furniture is getting more costly these days (Typically costs around 15k to kit out a small 1 bedroom, and this is if it's done on the very cheap--think appliances, bedding, towels, kitchenware, TV, WIFI, secure entry system, all the streaming subscriptions, )

- Wear and tear on the furniture and replacement costs

- Cleaning fees (please use a professional)

- Faster wear and tear on everything, from the HVAC to the plumbing to the fridge

- Potential hassle with neighbors who hate the constant flow of different parties

- Managing the guests (you have to cater, otherwise your reviews will suffer)

- Professional photography (ideally)

- Security issues (please use a secure locking service and ideally have some kind of security on the property)

- Liability

- Increase costs of home insurance

- You'll need a permit from the city

And check out the laws in your city/county about AirBnb restrictions. https://www.airbnb.com/help/article/864/los-angeles-ca

The Accidental Pandemic Landlords

Did a lot of people make pandemic house purchases? Yes. Did some of them overpay? If you call bidding $560k over asking overpaying, then yes. Are many of them happy? For those who are locked into the most ridiculous interest rates ever and are not renting anymore, heck yes. 

Do some of these people regret their purchases? Of course. I personally don't know of anyone in this boat, but some are feeling remorse because they reacted in a panic. And some of these new homeowners are wanting to move, relocate, etc. But rather than give up the house and their stupidly low mortgage lock, they are opting to rent out their homes while the rental market is hot. They're becoming accidental landlords, and as a result, discovering the joys of landlord tax writeoffs. 

Mills Act Contracts - City Wants to Re-assess the Impact of the Mills Act

The city is contemplating modifying the Mills Act, and hopefully not, end the program. This is a big issue since it affects a huge number of homeowners of single family homes as well as renters and owners of condos in many building in DTLA, Hollywood, Mid City, etc. 

Contact the City Planning Dept to voice concerns: https://bit.ly/3yregJF

The Mills Act:

In California, the Mills Act can be linked with the 20% historic preservation investment tax credit provided by the Federal Historic Preservation Tax Incentives Program and the Tax Reform Act of 1986. Federal affordable housing tax credits may also be utilized with these incentives to offset rehabilitation costs. Over a half billion dollars of private investment in California’s historic buildings is due in a large part to this program. Preservation tax incentives used on under-utilized or abandoned hotels, offices, stores, schools, warehouses, and factories give new uses that maintain their historic character and revitalize the property.

Benefits of the Mills Act:

- Historic Preservation 

- Housing Affordability via tax incentives

- Revitalization of once-derelict buildings

- Restoration instead of tearing down and increasing landfill waste

- Contributions to city economy due to restoration efforts

- Contributions to city in terms of historic and cultural monument status 

- Reversal of blight in many areas

Mills Act Building in DTLA (in addition to the many structures and single family homes around LA!)

https://reinventingdtla.com/search-by-feature

Learn more about the Mills Act:

https://planning.lacity.org/preservation-design/historic-resources/incentives-resources/mills-act

Buyers Taking Advantage of Softening But Not Crashing Market

Interest rates may not go down for a while, and buyers are taking advantage of the softening market before it begins to head up again. 

Some buyers are waiting it out, seeing if the market will implode like it's 2009. But that doesn't seem to be happening while supply remains tight. 

I don't know anyone who is giving up their 30-year fixed 2.5% interest rate anytime soon.