Los Angeles Real Estate Market Analysis and Investment Opportunities
Los Angeles Real Estate Investment
our latest analysis of the multifamily market in Los Angeles for 2023. In short, the city's population growth and steady influx of new residents are driving strong demand for rental housing. Additionally, the market is experiencing a healthy balance of supply and demand, with stable occupancy rates and consistent rental rates. However, the high cost of living and concerns about oversupply are important challenges to consider when investing in the area. As such, it is highly recommended to invest with a sponsor that has a long-term track record of success owning and managing multifamily properties in Los Angeles such as Landmark Capital.
Los Angeles Real Estate Market Labor Statistics
Population
Population growth is the lifeline for all walks of property investors. Population growth is paramount to a healthy rental market.
Per census.gov, as of July 1st, 2021, the city of Los Angeles’s population was 3,849,297.
There is other deep demographic data on the linked page and information about the Los Angeles housing market, healthcare, and education. Ideally, you’d see a growing percentage of residents moving into the city
To find this data, the Census organizes population data by decades. There are two pages we need to review:
I like to look at population growth for one year, three years, five years, and seven years. You can take the population today as the base and use the reports above to compare it to past years.
One year could be an anomaly, while a zoomed-out view could be much more insightful:
Los Angeles Year-over-Year Population Growth: -1.04%
Los Angeles 3-Year Population Growth: -3.23%
Los Angeles 5-Year Population Growth: -2.87%
Los Angeles 7-Year Population Growth: -1.55%
Finally, the last metric I like to look at is the age cohort of the population in Los Angeles County. Ideally, you’d see a large cohort of the population aged 25 - 34 (Millennials) and robust growth coming from these folks.
This “Young Adult” or “YA” age group has arguably the most potential in the workforce and is coming into its prime. More young, professionally aged workers coming into the county are bullish for future employment fundamentals.
This Census.gov data set is as recent as July of 2020.
YA as % of Total County Population: 16.34%
YA 1-Year Growth: -0.70%
YA 3-Year Growth: -0.47%
YA 5-Year Growth: +2.16%
YA 7-Year Growth: +5.56%
And finally, I want to take a look at net domestic migration. This report was last updated in 2021.
State-to-State Migration Rank = 48th
State-to-State Increase (as % of Population) = -0.94%
Populated with the Bureau of Labor Statistics data for unemployment, labor force, and job information.
Data Current Through: 05/2022
Unemployment Rate
Unemployment 1-Year Average: 6.79%
Unemployment 3-Year Average: 8.63%
Unemployment 5-Year Average: 7.03%
Labor Force
Labor Force 1-Year Growth: +0.37%
Labor Force 3-Year Growth: -1.47%
Labor Force 5-Year Growth: -0.28%
Job Growth
Job 1-Year Growth: +5.80%
Job 3-Year Growth: -1.96%
Job 5-Year Growth: -0.34%
Major Employers
The concentration of too many employees working at one company is risky. If something happens to a significant employer and jobs are lost, many renters could leave the market searching for other employment opportunities.
Normally, I’ll do some Google searching to see if I can find if any employer accounts for more than 5% of the workforce. As you might expect, the government is the largest employer in the LA metro, with LA County employing over 100,000 residents. The largest private company appears to be Kaiser Permanente, with over 40,000 local employees.
Employers > 5% of the workforce: 0
Household Wages
Resident incomes are essential. More education will correlate with more income and less poverty. The last three labor statistics we look at come from census.gov quick facts and involve median income, poverty, and education.
5-Year Median Wage: $65,290
% of Poverty: 16.90%
% of the Population with a Bachelor’s Degree (25+): 35.60%
Los Angeles Rental Property Fundamentals
Rental Stats & Vacancy
Higher future rents in a submarket make development projects more enticing and value-add more lucrative. Looking at the current rents of a submarket and how they’ve trended over there years is an essential step. Preferably, historical rental data shows good growth over the past few years and overall rent levels that are still “reasonable” and affordable for a large swath of renters.
I use Apartment List for rental data as they publish monthly reports on rental and vacancy trends.
You can also read about Apartment List’s calculation methodology here. A local “boots on the ground” commercial real estate brokerage team, realtor, or other real estate service providers may also help provide you with rental statistics in a city or neighborhood.
Rental Stats
Average Rental Rate: $1,899
Rent Growth 1-Year: +13.37%
Rent Growth 3-Year: +7.71%
Rent Growth 5-Year: +12.97%
Vacancy Stats
Current Vacancy: 4.50%
Vacancy 3-Year Average: 7.08%
Vacancy 5-Year Average 6.58%
Reasonable rents, explosive rent growth, and low vacancy is the most desirable combination for future rental income growth.
Affordability
Solid rent growth trends are moot if the tenants struggle to pay their monthly obligation. I like to compare the average rental rate with the 5-year median wage (from earlier).
$65,290 / ($1,899 x 12) = 2.87
Many property management companies will require rents to prove a 3x gross income/rent ratio. Anything above 3.00 is generally considered healthy and affordable.
Another significant component of rental affordability is the local homeownership stats. If Los Angeles homes are cheaper than apartments, it may sway “would-be” renters into home buyers.
To get home value intel, I use Zillow’s research center. You’ll need to specify which kind of housing you want to be included. I include all single-family homes, townhouses, condos, and co-ops.
Los Angeles Median Home Value: $1,004,807
Note: You could also check with local real estate agents who likely have access to the multiple listing services (MLS) data of recent property prices, price cuts, and other valuation data.
Higher median home prices create a higher barrier to entry to homeownership, especially for first-time homebuyers. I estimate the monthly mortgage obligation as:
I assume a 5% down payment for principal interest, the current market interest rates on debt, and a 30-year amortization.
For the “other costs” like insurance and property taxes, I lean on the Census.gov quick facts for “housing costs without a mortgage” and tack them onto the principal and interest payment.
In Los Angeles:
Principal & Interest = $5,571
Other Costs = $754
Total Estimated Mortgage Payment= $6,325
Note: It may also be wise to account for a mortgage insurance premium (MIP) on top of insurance and property taxes.
I then like to compare this amount to the submarket rent. The greater the cost of homeownership, the more sensible renting is.
Total Estimated Mortgage = $6,325
Average Submarket Rent = $1,899
$6,325 / $1,899 - 1 = 233.05%
Owning a home is over 3x more expensive than renting in Los Angeles (although you must remember that renting a newer unit in the best Los Angeles neighborhoods will likely be more costly than the “average” and vice-versa.
Homeownership
It’s essential to dig deeper and understand the local housing landscape.
You can get the homeownership rate from the Census.gov quick facts.
Homeownership Rate = 37.00%
The higher the rate, the more risk of eventually losing apartment residents that convert to homeowners.
I also like to know the total housing stock (rental, SFH, condos, etc.). The Census website provides housing stock data broken down by county. I added all the housing stock for the following counties:
Total Housing Stock = 6,648,647
I also want to know how many single-family homes are planned. Too much new housing supply could be troubling for apartment rentals. The Census provided MSA-specific permit information on single-family home permits (updated each May for the last year for the Los Angeles-Long Beach metropolitan area).
2021 SFH Permits: 11,090 units
And finally, I want to divide the SFH permits by the total housing stock. This intel will help compare to other cities to gauge the supply.
SFH Permits / Total Housing Stock = 0.17%
A high percentage may foreshadow a future housing supply glut that adversely affects rental metrics.
Multifamily Development
If you’re a developer, you’d be wise to run the same calculation as we did for SFHs, but for apartment units (or the number of permits for structures with 5+ units).
2021 5+ Unit Permits: 18,267 units
And then divide by the total housing stock.
5+ Unit Permits / Total Housing Stock = 0.27%
The lower, the better if you are a multifamily developer. The higher this ratio, the more competition you’ll be against when leasing the units.
Multifamily Supply
Supply metrics are essential if you’re looking to enter a new market. Oversupply of apartments can lead to high vacancy and dismal rental trends, thus making it hard to maximize cash flow. I like to look at total rental units in the MSA.
That number alone doesn’t tell us much. When you divide it by the population and total housing stock, it gives you valuable insight into the population compared to other markets around the country.
Total Apartment Units: 1,365,316
Apartment Units / Population: 10.33%
Apartment Units / Total Housing: 20.54%
High ratios don’t bode well for investors entering or actively participating in the market with large investment portfolios.
Summarizing the Los Angeles Real Estate Market
The information we gathered on this page will be much more helpful when compared to other cities around the US (such as comparing Los Angeles to Phoenix, Las Vegas, or Austin).
Los Angeles has a massive population base in Southern California. Homes are expensive, and there are many renters by necessity as renting is far cheaper. There isn’t a lot of new housing supply coming online as permitting has been very scarce as a percentage of total housing stock in the LA Metro.
Today’s analysis will give you a high-level assessment of the Los Angeles submarket. I believe that if the fundamentals aren’t good in a particular city, it will be tough to have sustained success at the project level for real estate investment opportunities. The Los Angeles multifamily market remains a solid investment opportunity for those with a long-term perspective. One of the best ways to navigate these challenges is by partnering with a sponsor that has a proven track record of success owning and managing multifamily properties in the area.
In particular, working with a sponsor that has a 45 year history of success owning and managing multifamily buildings in Los Angeles is crucial. Such a sponsor will have a deep understanding of the local market conditions, as well as the necessary relationships and expertise to navigate the complexities of owning and managing multifamily properties in the area.
In conclusion, The multifamily market in Los Angeles is expected to remain strong in 2023, driven by population growth, a steady influx of new residents and growing popularity of luxury apartments. However, with high cost of living and concerns about oversupply, it's important to invest with a sponsor that has a 45 year history of success in the area, to navigate the challenges and maximize the return on investment.
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our latest analysis of the multifamily market in Los Angeles for 2023. In short, the city's population growth and steady influx of new residents are driving strong demand for rental housing. Additionally, the market is experiencing a healthy balance of supply and demand, with stable occupancy rates and consistent rental rates. However, the high cost of living and concerns about oversupply are important challenges to consider when investing in the area. As such, it is highly recommended to invest with a sponsor that has a long-term track record of success owning and managing multifamily properties in Los Angeles.
The multifamily market in Los Angeles, California is expected to remain strong in 2023. The city's population continues to grow, driven by a steady influx of new residents attracted to the area's diverse job opportunities and high quality of life. The demand for rental housing is also being driven by an increase in the number of millennials and Gen Zers entering the housing market, as well as a growing number of baby boomers looking to downsize.
In terms of supply and demand, the Los Angeles multifamily market is currently experiencing a healthy balance. While there has been a moderate increase in new construction in recent years, the city's population growth has kept pace, resulting in a stable occupancy rate. Additionally, the average rental rate has remained relatively consistent, indicating a lack of significant upward pressure on prices.
One of the key trends in the Los Angeles multifamily market is the growing popularity of luxury apartment buildings. These properties, which typically feature high-end amenities such as rooftop pools and fitness centers, are attracting young professionals and empty nesters who are willing to pay a premium for a high-quality living experience.
Another trend to watch in the Los Angeles multifamily market is the continued growth of the city's downtown area. With the construction of new office and retail space, as well as an increasing number of luxury apartment buildings, downtown Los Angeles is becoming an increasingly attractive place to live for both renters and buyers.
However, the Los Angeles multifamily market is not without its challenges. One of the biggest concerns facing investors is the city's high cost of living, which can make it difficult for renters to afford to live in the area. Additionally, there are concerns about the potential impact of rising interest rates on the market, as well as the potential for oversupply in certain submarkets.
Despite these challenges, the Los Angeles multifamily market remains a solid investment opportunity for those with a long-term perspective. One of the best ways to navigate these challenges is by partnering with a sponsor that has a proven track record of success owning and managing multifamily properties in the area.
In particular, working with a sponsor that has a 45 year history of success owning and managing multifamily buildings in Los Angeles is crucial. Such a sponsor will have a deep understanding of the local market conditions, as well as the necessary relationships and expertise to navigate the complexities of owning and managing multifamily properties in the area.
In conclusion, The multifamily market in Los Angeles is expected to remain strong in 2023, driven by population growth, a steady influx of new residents and growing popularity of luxury apartments. However, with high cost of living and concerns about oversupply, it's important to invest with a sponsor that has a 45 year history of success in the area, to navigate the challenges and maximize the return on investment.