When Bell Properties is talking about rental properties in Los Angeles and the people who are looking for them, Bell Properties can tell you that the landscape has changed dramatically over the last few years. There are a number of trends and shifts that have occurred among tenants, neighborhoods, and property values that have impacted the rental market and your position in it.
The tenant population is far more diverse now than it once was. There are people in every age group looking for rental homes, from college students who want to move in with a cluster of roommates in order to save money to retirees who want a low-maintenance lifestyle and a lower cost of living without leaving the Southern California area.
The properties themselves have had to pivot a bit in order to meet the demands and the realities of the current market and the economic climate. There’s a higher demand for multifamily rental homes, for example, because they’re generally more affordable.
We cannot forget this demographic: remote workers.
More and more people continue to work from home. Since the pandemic sent many workers out of the office and into their homes, the trend has stuck. Some employers have called their team members back into the office but an increasing number of others have allowed their employees to stay remote, noting higher productivity and employee satisfaction.
What does this mean for you, when you’re renting out a property in Los Angeles or considering an investment?
It means you have to be flexible, adaptable, and willing to consider certain properties that you might not have considered previously.
Here’s how you can best adapt to demographics shifts in the local rental market.
Diversify Your Investment Portfolio
If you own an entire rental portfolio of single-family homes in residential Los Angeles neighborhoods, you likely have a strong and valuable portfolio. However, it’s probably time to diversify a bit. Think about multifamily rental homes closer to the city centers. This is going to position you to attract tenants in a wide range of demographic groups. When you own a single-family rental property, you’re narrowing your tenant search to those renters who want the space and privacy that come with homeownership but not the maintenance and the ongoing expenses. That’s still a strong demographic, however, you also have a large pool of tenants who are looking for affordability.
On the flip side of that, if you’ve invested strictly in multifamily properties, this might be a good time to add a single-family home to your portfolio. Why? Because the sales market continues to keep a lot of potential buyers in their rental homes. People who might have wanted to buy a home are nervous about buying now, with interest rates so high and the cost of a mortgage so prohibitive. These tenants might be more interested in a home than an apartment. They’ll be willing to pay higher rents for a neighborhood and a house that feels like what they might eventually buy.
The point is this: diversification is more critical than ever. The tenant pool has expanded in Los Angeles, and if you’ve concentrated completely on one type of property over another, it’s a good time to bring some variation into what you own. You’ll find you have access to more tenants.
Rents are Higher and Tenants May be More Difficult to Find
The industry standard for income to rent ratio has always been 3x1. You’ve wanted your tenants to earn at least three times the amount of rent. This is probably part of your screening criteria and written into your qualifying rental standards.
Tenants who could once easily meet this requirement are now struggling to prove that their income is what landlords in Los Angeles need it to be.
To adapt to a more expensive rental market, you may need to reconsider what your income standards are for new tenants. Perhaps your rents have gone up over five percent in the last year. A tenant’s salary likely has not increased by that much. That tenant is also paying more for groceries, gas, utilities, and other daily expenses. The combination of inflation and higher rental values has left a lot of tenants feeling like they won’t be able to pay rent, nor will they qualify for a rental home that they want even if they have good credit and great rental references.
Take a look at your rental value. Think about your ideal tenant. It may be a good idea to lower your income requirement to 2.5x the rental amount. This will still deliver high quality tenants to your doorstep and you’ll have an easier time attracting and keeping them. Vacancy rates have creeped a bit higher in Los Angeles, and one of the reasons for that is likely the cost of rental homes now. Prices have probably peaked, but they’re still high. You don’t want to chase away otherwise qualified renters with an outdated income requirement. Consider more flexibility here.
Who Lives and Rents in Los Angeles?
According to recent data, 63% of Los Angeles residents are renters. This is a pretty steep increase from 2019, when 54% of the population were renters. As a state, California is second only to New York when we’re talking about the highest rates of renter-occupied housing.
There has been a lot of talk about people moving out of Los Angeles. The population, however, did increase 0.37% from 2022 to 2023. While this isn’t the type of increase that a thriving city likes to see, it’s evidence that there are still plenty of tenants in Los Angeles, and they’re always going to need rental homes.
The Los Angeles rental population includes everyone from single professionals to families to active adults facing retirement to students and long-term travelers. As a rental property owner, you could find yourself renting to a family, a couple who has just begun their retirement, or a tenant from out of state or even out of the country who plans to live here for a year or two and attend school or work for a local company. This is a market driven by tourism, the entertainment industry, technology, aerospace, design, fashion, digital media, and healthcare.
You can position yourself to leverage this widening demographic pool of tenants by identifying who is most likely to rent your property. If you have units in a great school district, you’ll likely have families with small children. If you’re right down the street from UCLA, you may have college students, medical residents, and visiting professors. When you’re renting out a condo in the suburbs that has a great HOA, you might identify recent retirees as your ideal tenant.
Know who you’re renting to. It is impossible to market to a specific demographic (and also illegal from a fair housing standpoint), but if you know for certain what age group you’re likely to attract, you can make the necessary updates and offer the required amenities to attract those tenants.
Remote Working Tenants in LA
One of the major demographic shifts that we have to talk about is the way people work.
A large portion of your tenant pool will likely be remote workers. You’ll have to plan for this. While a lot of experts will tell you that these are exactly the sorts of tenants who are leaving Los Angeles, that’s not necessarily true. People who can work from anywhere are often choosing cities and areas that appeal to them for reasons outside of getting to the office. You could attract remote workers from anywhere to your rental property.
Here’s what these remote workers are looking for:
Great technology. If you’re providing internet services in your rental home, make sure they’re high-speed and reliable. If it’s up to your tenants to set up their accounts and services, make some recommendations for reliable local providers.
Smart home tech. More and more tenants are looking for smart home tech features, especially those tenants working from home. They favor video doorbells, smart thermostats, and anything that allows them to sync their virtual assistants such as Siri or Alexa. Smart home technology can be expensive, and you don’t have to invest in everything. Make some simple and cost-effective improvements that will attract attention from tenants who value these sorts of amenities.
Convenience. Online rental payments, easy parking, in-unit laundry, and outdoor space. All of these things matter to the residents who are spending more and more time at home.
Don’t ignore this demographic when you’re thinking about how to position your Los Angeles rental home for profit in the changing market.
As you continue to navigate this shifting rental market, lean on the professional resources and insight that a Los Angeles property management partner can provide. Bell Properties has access to data and analytics that allow us to see where things are heading. We can talk to you about demographics and rental values and neighborhoods and show you how to prepare for the current and coming market trends. Contact us at Bell Properties.
