By Hayley Smith
As a Buyer Specialist, I’ve spoken to many people who feel they can no longer afford to buy a home in Los Angeles–and I totally get why they feel that way. Sale prices are rapidly increasing while inventory remains quite low.
But there’s good news. It’s not impossible…In fact, it’s totally doable. A skilled Realtor can help you understand your options and think creatively about what might work for you. Generally speaking, owning a home still puts you in a much better position than renting. You may just need to think outside the box to get yourself into the market. That’s where income properties come in.
What Is An Income Property?
Income properties, also known as investment properties, are properties that allow you to earn income through renting or leasing. In other words, you can live in one unit and rent out the other–and the money from the rental will help pay your mortgage.
In some cities, income properties call to mind duplexes or townhouses with shared walls. While those do exist in LA, you’re more likely to find income properties here in the form of “two on a lot” listings, meaning two separate, detached houses on one property. One great example is our latest listing at 1242-1244 S. Sycamore Avenue.
Let’s Do Math!
Our Sycamore listing is a perfect example of an income property at work. The front house is currently leased out to a tenant who has been there for many years. Current market rate for that unit would be around $2,500 a month. The back house is vacant. If you were to purchase the entire property at its current list price of $995,000 (with a standard 20% down payment at a 30-year fixed rate of 4.5%), your monthly mortgage payment would be somewhere around $4,000*. With a tenant writing you a monthly check for $2,500, that means you’re only paying about $1,500 out of pocket each month for a million dollar property. Pretty cool, huh? I bet that’s either close to or less than your current rent.
But How Do I Qualify?
Here’s the other great thing about income properties. When you meet with a lender (which should always be the first step in your house-hunting journey), he or she will pre-approve you for a loan amount based on your income. That amount alone may or may not seem like enough to buy a house. But if you tell the lender that you’re purchasing an income property, the lender will run the numbers again with the tenant’s rent added to your income, meaning you can qualify for a higher loan amount. Again, pretty cool (or am I the only real estate nerd who thinks this stuff is awesome?!).
The Bottom Line
Los Angeles is the fourth highest rental market in the country. Owning an income property will not only allow you to earn equity on a home (and enjoy all the tax benefits that come with homeownership), but also to take advantage of this white-hot rental market by acting as a landlord for someone else. Income properties are an all around smart buy, and a great way to get into LA’s real estate market.
If you’re curious about income properties, I’d be happy to answer your questions or connect you with a lender who can help you get pre-qualified. And be sure to stop by my open house at 1242-1244 South Sycamore this Sunday from 2-5pm.
*This figure does not include taxes or insurance. However, keep in mind that if you’re currently not a homeowner, the tax benefits of homeownership will likely mean that there’s more money in your paycheck each month to cover those expenses. I’m not an accountant though, and each taxpayer’s situation is unique. Consult a CPA or other tax professional to make sure that you understand the tax implications of a specific transaction.