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.