Los Angeles: Rent vs. Buy 2012

Looking to move and wondering whether to rent or buy in Los Angeles?  According to Trulia’s Winter 2012 Rent vs. Buy Index buying is the right decision for 2012 in 98 out of 100 metropolitan areas.  Considering that home prices have fallen since 2007 and rents have increased, now is the time to buy.  The only exception for renting over weighing purchasing a home are Holmby Hills and Bel Air enclaves.  Los Angeles is one of the most expensive cities to buy comparatively speaking to the overall United States housing market, but Los Angeles is following the pattern of being cheaper to buy vs. rent as a whole.

The rental market has changed since the housing crash.  After the housing crisis, The Los Angeles Department of City and Planning noticed that the average monthly rent for two-bedroom, one-bath apartment almost doubled, from $870 to around $1,650.  Nationally, Zillow estimates about a 3% increase in rental income annually since 2010 and Hotpads shows a growth of 3.75% for the 20 largest cities.  Due to the foreclosures, many market researchers state rental housing will continue to rise in future years.

When considering the home size of a townhouse or condo, it makes sense on average to buy a smaller unit like a 1 bedroom versus purchasing a larger home of more than 4 bedrooms.  For instance, a one bedroom or studio has a price-to-rent ratio of 11.6, whereas a 3 or more bedroom’s ratio is 14.1 in Los Angeles.  A price-to-rent ratio of 15 or less shows that buying a home that the owner is planning on living in for at least 5 years is a better deal than renting.  There’s also a mortgage-interest tax to take advantage of after 5 years.  The price-to-rent ratio is based on home sales and rentals for December 1, 2011 to February 29, 2012.

Obviously to compare a rental to home ownership, one must compare two like properties.  To compare properties, there are a couple things to take into consideration.  A single family house is only comparable to another single family home.  Townhouses are commensurable to other townhouses or condos and vice versa.  When looking at a single family home, the lot size, square footage and condition of property can be similar, but the bedroom and bath quantity should be identical.  As far as townhouses and condos, be sure to look at a similar square footage, Home Owner’s Assocation Fees (HOA), Amenities (pool, workout facility, etc) and the same amount of bedroom(s) and bath(s).   “Location, location, location.”  If you would like to compare a property in Encino to Studio City the price per square footage would be drastically different, so one would need to know the average square footage for each area to obtain a proper analysis.

If you have any questions in regards to comparing your rent vs buy properties, please do not hesitate to call me at (818) 447-1024.

JoAnna Selby