Home Buying Advice for Young Los Angeles Couples

Most homebuyers enjoy looking at real estate, particularly in character-rich Northeast LA. But first you should get your financial ducks in a row.

It is no secret that Northeast LA is a hot real estate market. For many years, real estate in Highland Park, Eagle Rock and Pasadena have consistently been in high demand. Homes in Glassell Park, Hermon and Garvanza continue to fetch top dollar. Everyone is trying to take his or her slice of the American dream of homeownership.

But some interesting data on home prices, rental prices and home ownership rates with younger people in the Los Angele area should be given serious consideration by young individuals and couples who are sitting on the house-buying fence in 2017 and 2018.

The short story is prices for owning and renting are going up, ownership rates in LA lag behind the rest of the country, and low interest rates mean mortgage payments are actually less right now compared to other periods in the recent past.

Since 2007 home ownership dropped from 52.3 percent to 47.8 percent (in 2016), according to data collected by Apartment List. Those least likely to be homeowners today are African-Americans, Hispanics and people under the age of 45. (For what it’s worth, ownership rates overall dropped by 8.1 percent in San Diego.)

Another set of statistics (compiled by Lending Tree) found that 36 percent of Millennials were homebuyers. Ownership largely correlates with income and savings, so for those who think they might be able to do that, here are four critical steps to take to make it happen:

Time it to when you are most employed/credit worthy- You want to show a lender your best credit worthiness, which is a function of total income (both earners), debt-to-income ratio and your overall credit score. If either member of the couple plans to take time off or scale back their work schedule, such as to have children or go back to school, it’s wise to get a mortgage before making that move.

Know your financial parameters - Simply, you need to know what you can afford. List your monthly expenses, your monthly income, and pay special attention to what your monthly housing expenses are (calculating for utilities and insurance). Then meet with either a mortgage broker or a realtor to use that information to calculate what size of a mortgage you can afford. There are various terms in every mortgage (i.e., number of years, interest rates, size of down payment and closing costs) that will affect the size of your monthly payments.

Find your down payment - This will be 10% to 20% of the purchase price, or more if you have it. On a $600,000 home, that means you’ll need up to $50,000. We will leave it up to you to determine where it comes from (often it is from parents or grandparents who understand the good sense of owning over renting).

Plan for 4-6 years out - Because there are transactional costs associated with home buying, there is a breakeven point for all purchases (assuming an appreciating market) where you will be able to see a profit should you decide to sell. The real estate valuation firm Zillow calculated in 2015 the “breakeven horizon” in the Los Angeles region to average at 5.1 years. But this comes with variation. The Zillow analysis found numbers for several Northeast Los Angeles neighborhoods that hover around this average:

Eagle Rock 6.3 years

Highland Park 4.8 years

Hermon 4.5 years

Glassell Park 5.5 years

Mount Washington 6.1 years

Note that other areas have longer breakeven points, including Atwater Village (7.4 years), Silver Lake (8.3 years), Los Feliz (8.9 years) and South East Pasadena (9.1 years). No numbers were available for Garvanza, another popular NELA area.

Without question it’s a process that requires planning, saving and organizing. But for most people a home is also the biggest investment of their lives. There should be a little work involved.

What Does it Mean to Sell Your NELA Home “As-Is?”

Sometimes it makes sense to modernize and redecorate, other times a seller is smartest to leave the work to others. Knowing which to do when is the trick.

Even for the most ardent viewers of the television fix-and-sell home shows – from “Flip this House” to “Take This House and Sell It” to “The Real Estate Pros” to “Designed to Sell” – it’s not always clear if a home should be renovated and repaired before selling, or be sold “as-is.”

This is a common question in Northeast Los Angeles, where the inventory of mature homes for sale in Highland Park, Glassell Park and other similar areas offer a range of physical conditions. Bungalows common among Mount Washington homes that haven’t been touched in 60 years might have their charms, but sell for less than similar homes in Eagle Rock that were updated and modernized within the past ten years.

There is no hard and fast legal definition of what as-is means, although both buyers and sellers have a vague idea. For sellers, it means they will put little or no effort into repairs and decorating. Very often the home is inherited, where the heirs may not have the time or inclination to maximize the value of the property. Where the fixes need only be cosmetic (paint and light landscaping, for example, or perhaps kitchen modernization without moving walls), it can be a good value for the buyer.

But to sell as-is does not release the owner from disclosure about critical structural features such as a failing foundation, mold, and leaky roofs. If a house is outside of code requirements, if there are sewer or plumbing issues, problems with the electrical system (other than being out of date), or known covenants and restrictions, formal disclosure is required by the California Civil Code (Section 1102).

What much of it boils down to is economics. Take that sexy mid-century modern home for sale in Glassell Park or Hermon that might have undergone unfortunate style changes 20 or 30 years ago. The decidedly late-20th century renovations in the kitchen and bath might cost $50,000 to restore to something closer to a 1955 aesthetic. But will that investment net that much more in the sale price? Probably not. Instead, working with a knowledgeable NELA-area Realtor will find that asking price that will allow for renovations that the buyer can do after the close.

The as-is seller will likely find one of three buyers: the professional renovator-flipper, who knows how to renovate in a cost-effective way that will yield a profit. Another buyer might be the enterprising individual, who feels handy enough to either hire the help to fix it – or even do it himself or herself. A third buyer is the teardown developer – who really is just interested in the land and location.

The buyer who won’t look at an as-is home for sale? People in that large portion of the market that wants a move-in ready house.

So even if you watch a lot of home fix-and-sell television reality shows, your own reality should involve a professional Realtor with NELA knowledge. Call Tracy King, Realtor (Compass) at 626-827-9795, who has a quarter century of accumulated knowledge of this popular area and why any property in any condition should fetch the maximum price the market will bear.

Why Does Location Matter for Home Buying in Los Angeles?

Northeast LA (NELA) already is popular for several reasons. But when narrowing down to a specific neighborhood it helps to know what to look for.

Just a few years ago (in 2014), Northeast Los Angeles (NELA) initiated the city’s first bike friendly business district, or BFBD in the neighborhood of Eagle Rock. No surprise considering that in the years leading up to 2014, homes in Eagle Rock and surrounding areas – real estate in Highland Park has exploded with homebuyer interest – have pushed NELA to the top of LA’s hottest real estate markets.

The BFBD designation promotes better bike infrastructure on streets (corrals, signage, repair stations) that include Colorado, Eagle Rock and York boulevards and Figueroa Street. Businesses along those corridors hope to benefit as much as retailers in Long Beach and other cities have seen when bikers prove to be consumers.

This is a situation where location – as in the real estate mantra “location location location” – affects real estate values. A bike-friendly environment is a plus with younger buyers who gravitate toward non-motor vehicle transportation for at least a portion of their lifestyle. Northeast LA cities such as Highland Park and others clustered around the Lincoln/Cypress, Heritage Square and Southwest Museum stops on the Metro Gold Line have the advantage of being able to commute to downtown and Pasadena without turning an ignition key.

Aside from transportation questions, there are several other location questions a homebuyer in NELA should consider:

Worst home in the best neighborhood? Historically, your best chance for buying a home that will increase in value is to find the sad little fixer-upper in the pricier zip code (e.g., Mt. Washington). That is still true IF you’re a fixer-upper kind of person. Doing the opposite, to buy the awesome house in a dicey area, might leave you with buyer’s remorse and few buyers when it comes time to sell. But if you want a move-in ready home that stacks up well with the neighbors, expect to pay full price for the privilege.

Businesses within walking distance? Younger buyers are also expressing an interest in a walkable neighborhood, some consulting Walkscore.com to compare different homes and neighborhoods. Some studies show that proximity to Starbucks, Target and Whole Foods is associated with higher value increases over the past two decades. But perhaps what matters most is individual: If you are a bowler, you might love the exercise of a ten-minute walk to a bowling alley. Also, there is research that challenges the notion that proximity to strip clubs and marijuana dispensaries hurts a home’s value (early research in Colorado in particular suggests just the opposite).

Buy low while the neighborhood is on the rise? This mirrors the “buy low sell high” axiom of investing. And there is a lot of truth to it: when a large number of homes are being renovated in a mature neighborhood, it generally speaks to positive price increases. The trick is to get in at the earlier stages of such trends. But there are some things to look for which provide hints: is the neighborhood adjacent to other areas that are hot today? Is the existing housing stock “historic,” meaning 50+ years old and in its original design? Midcentury modern without a 1990s renovation would work, as would a 1910 Victorian with the original gingerbread trim. A collection of independent restaurants, art galleries and hipster coffee shops also are precursors to neighborhood gentrification (hot tip: check out Hermon, Garvanza and Glassell Park).

Concerns about environmental issues? California laws require disclosure of lead and known toxins in the soils. But if a gas station or dry cleaner was in the vicinity in decades past, you might hire an environmental investigation firm to study a specific property.

School districts – and property taxes? Good school districts almost always translate into higher property values. But with them tend to come higher property taxes. Empty nesters might look outside the box if the quality of schools doesn’t affect them personally – but a Starbucks down the street does.

Location does matter – but there are many factors that define what a location actually has.