Los Angeles is the country’s second-largest city; it’s no surprise then that Los Angeles is rich in real estate investment opportunities.
Over 10 million people live in L.A. County. There is so much real estate to choose from, with a vast range of property types, that it can be challenging to know where to start with your investment.
For beginner and veteran investors alike, multi-family real estate is a reliable, high-performing property type to include in a balanced portfolio.
Here’s what you need to know about multi-family home real estate investing in Los Angeles:
What Are Multi-Family Homes?
Multi-family homes are a specific classification of residential real estate. Their distinctive feature is the number of units contained within the property: a multi-family property or complex may contain at least two or more units within the same building.
The units within a multi-family home are thoroughly separated from each other. Their appeal lies in the fact that decently sized families can live right next to each other while maintaining a high degree of privacy from their neighbors. Units are sufficiently separated so that two or more families can live comfortably in close proximity.
The manner in which units are separated depends on the property. Many properties have units that are stacked on top of each other vertically; others have units placed in a side-by-side fashion.
What Are Examples of Multi-Family Real Estate?
There are many different kinds of multi-family properties, each with its distinctive advantages. Choosing the right property for your next investment depends on what best suits your financial situation.
Here are a few multi-family property types to look out for in the Los Angeles real estate market:
Condos
Condominiums strike a perfect balance as multi-family homes. Condos can range dramatically in size, serving all sorts of demographics depending on the surrounding market, family size, the community services offered, and so on. The number of bedrooms offered by a condo may serve everyone from retired parents to small, young families.
What sets condos apart is the manner in which they are developed and managed. Individual units are sold to buyers to own the property outright. The close proximity of separate units in the complex means that condo complexes tend to host a number of community amenities for residents to enjoy.
Shared amenities like fitness centers, pools, grilling patios, and more may be available to residents in the complex; residents get access to these benefits without the steep
price hike of owning them on their own.
Apartments
Many apartments are large enough to house a decently sized family. More often than not, apartments are not owned on an individual basis; the owner of the building generally retains ownership over all the units. Renting an apartment is a great way to generate consistent cash flow — the more apartments, so much the better.
Apartment complexes can range in size, with plenty of opportunities for pooled investment funds to even acquire large apartment buildings. As apartment complexes can be difficult to acquire outright, investing with a real estate investment firm is the best way to access these multi-family properties.
Mixed-Use
Mixed-use units are a great way to access balanced real estate. Their strength lies in their diverse range of units. These properties may consist of a building that hosts residential units as well as commercial spaces, cultural spaces, grocery stores, and so on.
Mixed-use properties are designed to promote stronger community ties. Their close proximity to fixtures in the community means that these units benefit from a stable, well-balanced housing environment.
What’s more, the range of property classification within a mixed-use building may translate to more secure investments. Residents living above a grocery store creates a synergistic dynamic wherein residents sustain the grocery store while the grocery store makes its neighboring residential units more attractive.
Duplexes
Duplexes are one of the most common types of multi-family properties. These units typically look like standard single-family homes. The difference is that they are split between two families, providing residents with a quality residential experience without the high living costs of a single-family home.
Duplexes are usually split right down the middle in a side-by-side fashion, although some may have units stacked on top of each other. Triplexes and quadplexes are similar, larger buildings in the single-family home style as duplexes.
What Are the Benefits of Owning Multi-family Real Estate?
- High cash flow
- High appreciation
- Tax breaks
High Cash Flow
Perhaps the strongest benefit of owning a multi-family property is its strong cash flow. Cash flow describes the amount of cash going into and coming out of an asset; the more cash coming out, the higher the cash flow.
Rental properties, like multi-family homes, boast reliable, high cash flow for holders. Leases give property owners clear control over how much income a rental property will generate.
Properties need to cover operating expenses to make a profit. When rental income can be set, the property owner is able to set a stable cash flow on a monthly basis.
High cash flow provides investors with a steady stream of cash with which they can further upgrade their assets or explore other investment opportunities. The steady income stream provided by multi-family homes opens up a world of investment opportunities for holders.
High Appreciation
Residential real estate assets, like multi-family homes, appreciate at a strong, stable rate that makes them effective long-term investments. Real estate is inherently disposed towards high appreciation: the natural scarcity and slow pace of new development create a steady supply that is rarely outpaced by demand. The result is an investment opportunity that reliably increases in value over time.
Property values in the United States have risen consistently year after year for the past half-century, almost without exception. People will always need a place to live, and investors will always value real estate. Multi-family homes are the stable kind of real estate that will keep your portfolio strong well into the future, no matter the economic shifts.
Investors looking for assets they can count on to rise in value over time ought to invest in multi-family homes; they benefit from this consistent upward trend in value, making real estate among the very best assets for long-term investment strategies.
Tax Breaks
Because safe, stable housing is so important to the community, the government offers a number of tax break advantages on residential real estate properties like multi-family homes.
While lucrative, the real estate market has high financial thresholds to overcome in order to invest. Large down payments, operating expenses, and unforeseen maintenance costs make property ownership a costly investment.
Tax breaks exist to encourage a stronger influx of investor capital to the real estate market. By giving property owners many tax break opportunities like write-offs, depreciation breaks, and 1031 Exchanges, investors can be more confident in making the investments that sustain the housing market.
Investors can offset the financial burdens that obstruct access to real estate assets by utilizing these tax breaks that help them keep more of their money. In the long term, tax breaks on a property can result in reliable, increasing returns on real estate investments.
Want to learn more about the benefits of real estate investing? Consult the educational materials on Christina.
What Advantages Do Multi-Family Homes Have Over Other Real Estate?
- Multiple tenants
- Appeals to specific demographics
- Strong market for rentals and starter homes
Multiple Tenants
Multi-family homes provide investors with a more reliable rental income source due to the multiple units the property offers. A single-unit rental unit always stands to put the property owner’s rental income at risk.
If the property goes vacant for an extended period, the longer that property will stay in the red. In the worst-case scenario, a delinquent client will freeze a unit’s cash flow entirely.
Rental income is safer than a multi-family property because with more units, the risk of cash flow freezing decreases. If one unit sits vacant other units on the property can still supply the property owner with rental income. As opposed to one property succeeding or failing on a single unit, multi-family properties provide safety with multiple income-generating units.
Investors appreciate the advantages that come with multi-family homes, namely more units to rent and more security in the event that a unit goes without a lease for a long time.
Appeals to Specific Demographics
Multi-family properties reliably appeal to specific demographics. Condos and duplexes target a focused audience which makes finding tenants or buyers for the property less difficult.
Condos, for example, are generally designed to appeal to a target market. Certain complexes are a popular choice for young, upwardly mobile couples beginning their life together; others appeal to older, retired people downsizing into smaller residences.
This strong appeal to a very specific person means that there is a reliable demand for multi-family homes. Therefore, there is a strong likelihood that they will provide property owners with a return.
Investors can count on multi-family homes to consistently generate a profit because their targeted audiences bring in a regular crowd.
Strong Market for Rentals and Starter Homes
Identifying market trends and what drives them is the key to effective real estate investing. The current market in Los Angeles indicates there is a robust rental market and an increasing demand for starter homes, trends that make multi-family properties a hot commodity.
Millennials are the largest generation. Current trends indicate they mostly rent, meaning there’s a consistent demand for rental properties — especially in big cities. With the majority of Millennials well into the age where they begin to settle down, demand for starter homes is likely to increase over the next few years.
Multi-family homes tap into both these trends. They are a great property for rental income strategies; they’re also an ideal starter home for Millennials that are finally ready to buy a property. 25% of Millennials between 25 to 34 live with their parents.
As more Millennials finally start to buy property, the value of properties like multi-family homes will likely increase dramatically—making now the perfect time to start investing.
What Are the Best Neighborhoods To Invest in Multi-Family Homes?
The benefits of multi-family homes as stand-out real estate assets are clear. But where should investors look in order to acquire the best properties for their portfolio?
The Westside region of Los Angeles is the most competitive market in all of L.A. county. Multi-family homes here are virtually guaranteed to excel.
Here are a few places to consider investing in multi-family homes in the Westside:
- Hancock Park
- Century City
- Santa Monica
Hancock Park
Hancock Park is amongst the most accessible neighborhoods in the Westside. An upward-trending middle-class neighborhood, this small neighborhood is rife with the amenities that draw in new families and young, upwardly mobile couples: plenty of schools, parks, and friendly suburban-style neighborhoods.
The majority of Hancock Park residents rent their homes, indicating there is a strong rental market in this neighborhood. The average income is over $76,000 a year (and growing), which is fairly middle-class for a Westside neighborhood, although the average income is steadily on the rise.
Few Westside neighborhoods have the explosive potential of Hancock Park, making it one of the best places to acquire a multi-family home in Los Angeles.
Century City
Century City differs from the rest of the Westside because of its position as West L.A.’s premier business district. This part of the Westside is one of a few areas in the city of Los Angeles to boast skyscrapers, wherein high-budget firms sustain the local real estate with a steady stream of capital.
The majority of residents in Century City are high-earners with a median income over 95,000.
Multi-family homes in Century City, like condos and apartments, are a hot commodity amongst the young professionals that work in the area. Investors that hold assets like these can expect their Century City real estate to continue its strong performance well into the future.
Santa Monica
Arguably the most popular neighborhood in the Westside, Santa Monica easily has one of the strongest real estate markets in Los Angeles county. With a vast range of property types, from luxury homes on the beach to high-end condos, real estate investors can be confident that Santa Monica properties will net them a return.
Multi-family homes in Santa Monica are the most accessible way for investors looking to crack this market. Condos, apartments, and duplexes are high-demand properties in Santa Monica.
With the average rent for Santa Monica units over three thousand dollars for a two-bedroom apartment, the more units to rent with a multi-family property, the better.
How To Invest in Multi-Family Real Estate in Los Angeles?
Multi-family real estate is a premium asset in Los Angeles. But acquiring them as an independent investor can be extremely difficult. Los Angeles properties have extremely high financial thresholds that present insurmountable obstacles for investors going in on their own. What’s more, managing properties on one’s own is a time-consuming endeavor that effectively amounts to a full-time job.
The best way to invest in multi-family real estate in Los Angeles is through a firm. Firms have the capital and capability to acquire the Los Angeles premium real estate, manage them, and ensure that they generate a strong return for investors.
The Best in Los Angeles
Christina has thrived in the Westside region for over four decades—Los Angeles’ most competitive market. Our team has the resources, knowledge, skill set, and network to deliver on premium real estate assets in the Westside, from luxury homes to multi-family real estate.
Get started with us today and protect your portfolio from tomorrow with premium real estate.
Sources:
Multifamily | National Association of Home Builders
Average Sales Price of Houses Sold for the United States | FRED Economic Data
What Is a 1031 Exchange? Know the Rules | Investopedia
LA City (Central/Hancock Park & Mid-Wilshire) PUMA, CA | Data USA
Century City Profile – Mapping L.A. | LA Times
One year into the pandemic, rents remain expensive in Santa Monica | Santa Monica Daily Press