Since property prices are at record highs around the country, renting has become the only option for many people. In reality, new home sales have fallen to record lows, especially in the West, where they dropped by 26% in 2017 compared to the previous month. Buyers in high-priced markets like Los Angeles may find themselves debating whether renting or buying is the better financial option. The reaction may come as a shock.
The analogy between a short and a long stay
Before proceeding with other concerns, you must first decide how long you intend to stay in our city. People who are interested in experiencing the relaxed atmosphere of Los Angeles but have no intention of making the city their permanent home might look into renting. However, if you want to settle in Los Angeles for at least the next seven years and have enough money saved for a down payment (about 20%), buying a property is the smarter financial choice.
But how could something like that happen? The question of whether it is cheaper to buy than to rent comes in light of the fact that the average interest rate has increased to 4.09 percent, and the typical price of a single-family home in Los Angeles has remained at roughly $600,000. Sales would likely favor renting if the median price reached $815,253 or if rates reached 102.2 percent, but these outcomes are extremely unlikely.
If your financial goals are only a few years down the line, these figures won’t mean anything to you. However, those who are set on making Los Angeles their permanent residence need to know this information. However, you’ll need a sizable chunk of money to purchase a home in the greater Los Angeles area. You’ll need a yearly income of around $98,315 if you don’t want housing costs to eat up more than a third of your hard-earned cash. Assuming a 20% down payment, this is what you may expect to pay.
Potential homeowners who get their feet wet now and plan ahead stand to save a bundle down the road. This is despite the fact that making sacrifices amounting to tens of thousands of dollars over the course of a decade isn’t simple and, in some cases, isn’t even possible for those living on the county’s typical family income of $56,196. The longer an investment is held in the Los Angeles real estate market, the greater the eventual return. Hence, feel free to say goodbye to your hometown, hire Boston to LA movers and get on the road for a brighter future.
If I buy a home instead of renting, how much money can I expect to save each month?
How big of a long-term impact do you anticipate these cost reductions to have? The right answer is 24%. However, the potential savings from a home purchase have been declining. The difference between home prices and rents will continue to shrink as home prices increase at a faster rate. Buyers in Los Angeles who have been hit with sticker shock due to increased prices may not find this prediction encouraging.
A home that costs $600,000 now can increase in value to a cool million dollars (or more) in thirty years. This is great news for young workers who are eager to get started and keen to try new things. The stakes are quite high in this decade due to the drastic changes in the economic climate. On the other side, the payoff may be significantly higher.
I’m looking to buy a property in Los Angeles, but I don’t know where a nice area is
To fully weigh the pros and negatives of a property purchase, though, it’s important to look at more than just the price tag. While homeowners often have higher up-front and ongoing costs than renters, they do have the potential for what is known as “net profits” over the course of their lifetimes. Homeowners whose mortgages have been paid off may see their “net proceeds,” another euphemism for profit, increase dramatically over the course of their ownership.
Foreclosures have been a dark cloud over the housing market ever since the subprime mortgage market crashed in 2007 and variable mortgage rates started to soar. Homebuyers in Los Angeles County in 2017 may wish to search outside the county for a more affordable option, possibly in San Bernardino or Lancaster. This might mean significant savings on monthly mortgage payments.
According to Zillow, the average asking price for a home in San Bernardino is $249,400. This is a whopping 58% discount compared to the regional average for Los Angeles. Lancaster, in the northern section of Los Angeles County, has a typical listing price of around $243,600 and boasts stunning views of the San Gabriel Mountains. People that are willing to be somewhat mobile in their housing situation may find success in cities with low housing expenses, such as San Bernardino and Lancaster.
Getting people to see things as they actually are will be the biggest challenge. A major factor contributing to the housing crisis was people’s lack of awareness of the commitment they were making.
Buyers in today’s market have the benefit of hindsight and can avoid making the same mistakes their predecessors did.
The Benefits of Homeownership Go Far Beyond the Monetary Ones
Many non-monetary benefits come along with property ownership as well, demonstrating that not everything has a monetary value. The practical advantages of home ownership far outweigh those of renting, even in the most opulent of apartments. Have you outgrown your current space? In comparison to the 1,800 square feet of living area found in the typical Los Angeles home, apartments in the city average only about 705.
Then there are the more mundane issues that a homeowner typically doesn’t have to worry about, such as noisy upstairs neighbors, strict parking regulations, and pet policies. Everyone who has ever lived in a leased apartment has secretly hoped at some point that they could get free of their annoying landlord. In other words, as a homeowner signs the deed, they immediately gain access to that perk. Unfortunately, the landlord is no longer responsible for fixing things like a leaking roof or a broken air conditioner, which is now your financial responsibility as a homeowner. And don’t forget to keep up with your property tax payments!
So, what does this mean?
Both renting and buying in Los Angeles are costly endeavors, but those who are able to do so and plan to make the city their permanent residence will discover that buying is the superior option year-round.