The Los Angeles real estate market is full of diverse investment opportunities for buyers who want to purchase and rent out a Las County property. If you’re trying to decide between a multi-family property and a single-family home, you’ll need to crunch some numbers and estimate the ROI you can expect on each type of asset.
Today, we’re focused on single-family homes because we believe ultimately, they can create higher returns for long term investors. Multi-family properties have their own benefits, but when it comes to long term ROI, it’s hard to beat what a single-family rental home can do for your portfolio.
Evaluate and Analyze your ROI
ROI depends on your ability to earn more than you spend on your rental property.
To calculate your return on investment, you’ll need to figure out your annual rental income. Perhaps your single-family home is renting for $3,000 per month or $36,000 annually. That’s your rental income.
Next, you then want to subtract all the expenditures required of your rental property. This would include your fixed expenses like mortgage payments, taxes, insurance, and any HOA or condo fees. Then, there are other variable costs to consider like maintenance and vacancy. The number that remains gives you a general idea of what you’re earning in cash flow. That’s going to contribute to your ROI but remember what really matters is that you’re gaining equity from year to year and at the same time, your asset is appreciating in value.
Why Single-Family Homes Have Higher ROI in Los Angeles
Single-family homes appreciate in value faster than multi-family units or apartment buildings. You have a much better chance at earning more when you’re ready to sell. That’s because demand for single-family homes is always higher. Your pool of prospective buyers is larger; it includes traditional homebuyers as well as real estate investors. This significantly widens the pool of potential buyers.
Los Angeles tenants also tend to favor single-family homes over apartments or multi-family units. This trend will likely increase as demographics shift and the largest pools of tenants are older Americans and Millennial Americans. A large number of retirees are choosing to sell their homes for a low-maintenance lifestyle. They still want the privacy and space that comes with a single-family home. Younger tenants might plan to buy a home someday, but for right now they’re renting, and they’d rather rent a house that feels like a home. It’s what attracts them to single-family rental properties.
Lower tenant turnover is another benefit to single-family investments. Once you have a tenant in place, you’re less likely to lose that tenant after a year or two when you have a single-family home. These tenants are often looking for space, good school districts, and pet-friendly properties, and a well-maintained single-family house is going to be the place they want to stay. This increases your ROI.
Whether you currently own a single-family rental property in Los Angeles or you’re thinking about buying one, we’d be happy to help you calculate and analyze your current or projected ROI. Please contact us at Bell Properties for more information.