Downtown Los Angeles, what am I missing?

Question

Hello All!

My wife and I are considering moving to downtown.  She works there and I'm an agent so I can work anywhere.  My thought is DTLA prices are suppressed thanks to COVID, however I believe there will be a bounce back because of the lifestyle DTLA brings.  Therefore staying near Staples Center or the Financial District is our best best.

Here is my dilemma.  It is significantly cheaper to rent there than it is to own (over $1,000/month difference when putting 5% down).  Knowing we would only live there for 1 year, maybe 2 max, it may make sense to rent rather than own.  I already have two properties in LA (I have been house hacking).  One thought is after two years when things go back to "normal", sell.  With the equity build we would either (a) make money or (b) break even which means we lived there for free or at least less than if I had rented.

Am I missing something?  I feel like there is an opportunity here for the right place but can't seem to find it.

Thank you all!

-Rick

Lee Ripma · Answer

@Rick Albert - I'm in the @Tony Clark camp. I don't confuse living in real estate with investing in real estate. I invest in real estate. I live where I want. I rent in LA. I own a place in Mammoth Lakes which is purely for my enjoyment and it has negative cash flow and positive enjoyment. I invest in small MF in the Kansas City market (both KS and MO sides). Everything I invest in is purely an investment and I don't have to worry about my taste if I want to live there if I feel safe at night. I'm not my target tenant.

Tony Clark · Answer

Hey Rick, I went through a similar dilemma with my wife. We just moved out of LA (Ventura County), but were considering house hacking while we were there, but the numbers just didn't make sense. We wanted to have multiple exit strategies and we couldn't find a property that would cashflow once we moved out and started renting both sides. We knew that we could sell when we moved out but we didn't want to risk being forced to sell at a loss if the market took a downturn.

What we settled on was renting while we lived there and looking to invest out of state (for us it was TN). 5% down in LA was equivalent to 20-30% down for a rental in the markets we looked at in TN, and the cashflow from the rentals helped offset our LA rent.

We wound up moving out to TN full time to invest and house hack, but that's how we viewed it when we were living in LA. I know it is possible to find properties in LA that will cashflow, so if you can find a great deal then I think you're on the right track! We just weren't connected enough there to find one of those deals, and found it easier to do so elsewhere.

Faozat Ogunremi · Answer

LA has TONS of opportunity! Its a hun!! Anyone denying that is wrong...it just depends on how/when you want that to pay off. The payoff may not be immediate, but surely just take a look at the updates that are going on in downtown and throughout LA especially for the Olympics.  LA is hot and it will only continue to rise in cost. There are endless opportunities there !

Bobby Lady · Answer

In the 12-ish years I've lived in LA, I've seriously looked at living downtown several times and have always been discouraged by the overall environment and lack of safety. South Park and the Financial District seem to fare better than the Historic Core, Bunker Hill, etc. but check out some community Facebook groups and you'll find lots of long-time residents complaining that they can't wait to leave. I think the COVID hangover is going to last longer there than in other parts of the metro area, it's a hub for lawlessness for which there isn't a near term solution.

In terms of investment, there are lots of highrise developments in the pipeline that will bring thousands of brand new units to the market over just the next 1-3 years, with more proposed. That jump in supply along with current conditions make it a tough sell for me.

I agree with another commenter about house-hacking opportunities with more upside in nearby pockets, ie USC, Pico Union, even Historic South Central.

Nabil Suleiman · Answer

@Rick Albert Have you looked at the options surrounding DT? I have a friend who rented in one of the buildings across from the Staple Center, and its nice, but at the same time, until DT does come back to life its meh, its almost like renting in a cool place with none of the cool stuff available. If you can rent near by and take the train in when things do open back up thats cool too. I have owned, sold, rented etc as long as the money I was using was being put to work for growth, so as long as your rental decision is based on your ability to utilize the down payment money on something that would generate a return you feel is greater than the appreciation of forced equity and or the depreciation + principal benefits, then by all means rent. If you do rent, negotiate as many months free as possible and use your agency fee as a discount toward whatever else you can.

Steve Jones · Answer

Hi, you never know time length, sometimes 1 or 2 years turns into longer?

My vote it to buy.

My bet is that downtown will turn around much quicker than anticipated....once restaurants and bars are able to open you will see a surge.

Of course pure speculation....we will see!

Rick Albert · Answer

I completely agree @Faozat Ogunremi.  I bought my second house hack where at best would break even on our hard costs.  Fast forward with the first refi and we would net $300/month.  Now, once we move out we will net somewhere in the range of $1,100/month.  It takes time and patience.

Rick Albert · Answer

@Steve Jones

That’s my gut feeling too.  Looking at Manhattan as an example, they are coming back with a vengeance.  Even with people working from home, the younger crowd is going to want to live there for the experience.  Plus some of these buildings are newer builds, which means not subject to rent control.  That makes it way more exciting.

Downtown Los Angeles, what am I missing?

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