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Renting a Home vs. Buying a Home in Los Angeles

 
You might as well flush money down the toilet. The authors of the 2018 Casden Multifamily Forecast, a rental market study, estimate that LA renters now pay $2,267 per month on average. They project that number will rise to $2,358 in 2020—an increase of 4 percent.
 
Rents go up and down. Property values go up and down. Eventually they always seem to go way up, especially as they recover from recession.  The home I bought in 1998 for $205,000 just sold for $1,199,000. In contrast, the apartment I rented for $850 in Silverlake in 1994 now rents for $3,800 a month.
 
Think about it. Interest rates are still at record lows. By purchasing a home now you can freeze what you spend monthly for a place to live but rents will continue to increase. Being a renter in Los Angeles is just not a smart long-term option.

 
Let’s take a look at some scenarios for purchasing a home.
 
With interest rates at 4% for 30 years (estimate) these are the monthly payment options and also possible tax savings of owning a home).
 
10% down payment
$500,000 / monthly payment $2,148.37     (1st year income tax savings $6,174)
$750,000 / monthly payment $3,222.55    (1st year income tax savings $9,261)
$1,000,000 / monthly payment $4,296.74 (1st year tax savings $12,348)

20% down payment
$500,000 / monthly payment $1,909.66   (1st year income tax savings $5,488)
$750,000 / monthly payment $2,864.49  (1st year income tax savings $8,232)
$1,000,000 / monthly payment $3,819.32   (1st year income tax savings  $10,976)
 
***tax savings based on federal marginal rate of 24% and CA tax rate of 10.3% and interest rate of 4%
 
The advantages of homeowner ship are clear.
  • Fixed housing expense over 30 years

  • Possible tax savings on interest paid

  • An asset that, once paid off, allows you to live payment free. Or rent out the property and live somewhere else. This is a great option during one’s retirement years.

 
You have moved to LA or grew up here, now why would you not want to own a piece of this great city?

Dirt. They aren’t making more of it. Even if all you can afford is a condo, step up and own a piece of LA while you still can.



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