Rising interest rates have many investors rethinking their strategies, including whether to jump into the multifamily real estate market in Los Angeles. With the cost of borrowing going up, will the potential ROI for a rental property still be high enough for the investment to make sense? Two recent high-profile sales make it clear that multifamily properties are still a hot commodity, and investors who hesitate may miss valuable opportunities.
September saw multimillion-dollar sales in Eagle Rock and Koreatown that illustrate the continuing demand for multifamily properties in Los Angeles. Maywood, a 13-unit community in Eagle Rock, sold for $5.9 million. Built in 1961 and extensively renovated in 2020, Maywood features 1- to 3-bedroom units with amenities such as in-unit washer/dryer, stainless steel refrigerator, dishwasher and gas range, quartz countertops, air conditioning and electric heat. The property’s location, occupancy, and Class-A renovations prompted significant investor interest in the listing prior to the sale. Prices for single-family homes in Eagle Rock have soared 43.7% over 2021, putting the median sale price at $1.1 million. With homeownership prices out of reach for many, apartments will continue to be in high demand in this area.
In Koreatown, Landmark Global Management purchased a 54-unit apartment community at 340 South Kenmore Avenue for $15.9 million. Built in 1965, the property includes 9 studios, 33 one bedroom/one bath units, and 12 two bedroom/two bath apartments. In looking to add to its Koreatown portfolio, the buyer considered the building’s comparatively large units and curb appeal as incentives for the deal, with rising rents upon unit turnover adding value to the purchase. Located in central Los Angeles four miles south of Hollywood and three miles west of downtown, Koreatown is known as a cultural hub of diversity, attracting everyone from young singles and urban professionals to families.
The purchase of a multifamily property can have additional benefits for investors selling a business or investment property and seeking to avoid a large tax payment on their capital gains. When taxpayers replace real estate used for business or investment purposes with like-kind properties, a 1031 allows them to defer payment of capital gains on the sale. For example, someone selling an office complex or shopping center could purchase an apartment building; the property types do not need to be identical.
However, qualifying for a 1031 exchange can be tricky, as the requirements are complex and strict. Both properties must be located within the U.S., and investors must identify one or more replacement properties of equal or greater value than the original within 45 days of the date of sale. The replacement must then be purchased within 180 days of the sale. Additional provisions apply as well, so it’s important to have the guidance of a real estate firm experienced in 1031 exchanges to ensure your transaction meets the necessary conditions. Otherwise, you may be hit with an unexpected tax bill. Tiao Properties has successfully handled 1031 exchanges for a diverse range of clients throughout the years; if you’re looking to change or diversify your current real estate investments, we can help.
Demand for Rentals Still High; Eviction Moratorium Ending
With renters making up 63 percent of the city’s residents and vacancy rates low, investors in multifamily properties can be confident that units turning over will not remain empty for long. In addition, the City Council voted on October 4 to bring the long-standing COVID-era eviction moratorium to an end on February 1, 2023. The rule allowed tenants to defer paying rent to prevent a wave of evictions and bankruptcy due to COVID-19 restrictions and layoffs but was perceived to be subject to abuse by certain tenants who failed to pay rent for extended periods.
In their meeting, council members stated that with businesses reopened and vaccines available, the moratorium had served its purpose. Under the approved plan, tenants will have until August 2023 to pay any past-due rent. In addition, in February 2024 rent hikes will be allowed at rent-controlled apartments again, and landlords will be able to evict tenants for residents not listed on the lease or for unauthorized pets.
Tiao Properties is a full-service boutique real estate brokerage, management and investment company serving communities throughout the Los Angeles area. With the multifamily market on the way to a post-pandemic normal, we’re more committed than ever to helping our clients find the right properties to fulfill their investment goals. Our team speaks Spanish, Mandarin, and French for the convenience of our multilingual investors. To find out more about our services, contact us here.