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SHOULD YOU RENT OR BUY A LUXURY HOME IN LOS ANGELES? – Ben Kruger Real Estate

SHOULD YOU RENT OR BUY A LUXURY HOME IN LOS ANGELES?

frontview of a house in Mar Vista, Los Angeles, CA
Los Angeles and luxury have always gone hand in hand. Home to Hollywood, the filmmaking capital of the world, Los Angeles is known for its celebrity residents, fabulous shopping and dining, and exclusive neighborhoods with beautiful upscale homes.

Millions of people visit Los Angeles every year to experience its diverse attractions and have a taste of its famed luxury lifestyle. And with the popularity of short-term vacation rentals today, discriminating visitors have the option to stay in upscale homes, villas, apartments, and condos instead of staying in hotels.

Los Angeles is also one of the largest financial centers and most dynamic economies across the globe. LA County has a workforce of more than 4 million people, while the city of Los Angeles alone employs over 2 million individuals.

As such, thousands of people are drawn to the city’s economic opportunities and move to Los Angeles annually. And with the tendency of new residents to rent rather than buy a home, this has resulted in a constantly high demand for rental properties.

About 60% of LA County’s 10 million residents are renters. These include those who prefer luxury rental homes where they can enjoy utmost comfort, convenience, security, and privacy.

As in any other city, one of the questions LA residents often ask themselves is, should they rent or buy a home? The answer is never as straightforward as anyone would like, especially in a highly dynamic and complex market like Los Angeles luxury real estate.

Should you rent or buy a luxury home in Los Angeles?

Here’s a look at some of the most important factors to consider when making that big decision:

  • The cost of buying vs. renting
  • Commitment to settle
  • Investment potential
  • Tax benefits
  • Personal freedom
  • Sense of belonging and community
  • The cost of buying vs. renting

    In Los Angeles, the price of luxury properties starts at around $1.5 million and can go to over $100 million. Aside from their down payment, home buyers will have up-front costs associated with their purchase such as inspections and escrow fees.

    In addition to the mortgage, there are also regular homeownership costs to consider, including maintenance, property taxes, and insurance. You also need to consider the costs of new furniture and appliances to go with your new home.

    While renting also involves upfront costs like security deposits, they may not be as substantial as those in buying. Moreover, the costs for regular maintenance and repairs are often borne by the landlord or property owner.

    However, luxury home rentals also do not come cheap. The price for luxury apartments in Los Angeles can go over $27,000, with an average size of 823 square feet. Rates for top-of-the-line luxury homes in exclusive enclaves like Beverly Hills can go from $40,000 to over $200,000 per month.

    Moreover, renters always face the possibility of rent increases, and when inflation is high, the increase can be significant. The owner may also decide to sell the property anytime, leaving renters with no alternative but to find another home.

    With interest rates currently at historic lows, buyers are finding fixed-rate mortgages appealing as the rate (and payment) is locked in through the life of the loan. An alternative loan type is an adjustable-rate mortgage.

  • Commitment to settle

    Building equity takes time. A general rule of thumb is a purchase starts to make sense if you intend to stay in a property for more than 4 years. By that time, you would likely have built enough equity on the property to make a profit if you put it on the market. So unless you plan to live in the home for at least the next four years, renting may be the better option for you.

    Some high-earning individuals prefer renting over buying because of the ease of moving. If you need to move, you can simply pack your things and go, especially if you rented a furnished home. On the other hand, homeowners have to take care of selling or renting out their property first, and will also need to attend to the disposal, transfer, or storage of furniture and other belongings.

    Take a good look at your lifestyle and see if you’re ready to settle in one place for at least the next four years. If there’s a big possibility you will need to relocate before that, or if you prefer a more nomadic way of life, then perhaps it’s not yet time for you to be a homeowner.

  • Investment potential

    At any price point, one of the most important things to consider is that rental payment is essentially money down the drain. On the other hand, your mortgage payments go to building your equity in the home. The more payments you make, the more equity you get.

    After you’ve paid down your mortgage or have built enough equity on the home, you can potentially make a profit when you sell the property. This is especially true in Los Angeles where home values have been skyrocketing, with the median home price increasing by 94.9% from January 2012 to October 2020. And there are no signs that this trend is letting up anytime soon, with the Los Angeles market registering a record high $700,000 median home value in 2020.

    Luxury real estate is always considered a great investment. It has historically been more resilient than any other real estate type and is the first sector to bounce back after a recession. Many luxury home buyers are not affected by economic downturns and continue to be active even when the market is down.

    If you’re buying the property as a second home, you can potentially turn it into a business and make a good passive income by renting it out when you’re not using it. There will always be a market for luxury rentals as people who have a taste for the finer things in life will always choose to live in a luxury home.

    You can also take advantage of the growing home-sharing economy and list your property on Airbnb, Vrbo, and other short-term rental platforms. If the property has a guest house, consider putting it up for rent. Or, if you have the extra space, you may choose to rent out a room or a story in the house.

  • Tax benefits

    One of the benefits of renting is that you don’t have to worry about property taxes. As property tax is determined by the assessed value of the property, this can be highly significant for luxury property owners.

    In Los Angeles, property tax rates begin with a general county rate of 1% of the property’s assessed value. Taxes imposed by the different municipalities are added next. According to this report, the tax rate in the city of Los Angeles as of July 2020 was 1.22%. In Beverly Hills, it was 1.089%, while in Malibu, it was 1.102%.

    However, while homeowners have to face the burden of property taxes, they also enjoy a number of tax benefits.

    • Unmarried individuals can keep up to $250,000 in profit from capital gains tax ($500,000 for married couples) when they sell their primary residence thanks to the home sales exclusion. This is a major incentive towards homeownership and wealth generation.
    • If you itemize your federal income taxes, you can reduce your total income tax by deducting the interests you paid on your mortgage as well as your property taxes.
    • Homeowners in LA may deduct $7,000 from the assessed value of their property to reduce their property tax
    • If you rent out the property for more than 14 days in a year, you get more tax benefits, including income tax deductions for your expenses in maintaining the property, insurance and utility costs, long-term capital gains deductions, and so on.
  • Personal freedom

    When you rent a home, your freedom to make structural changes is very limited, if you have any at all. If you want to add a kitchen island, more cabinets, or a walk-in pantry, you need to get approval from the landlord first.

    When you own your home, you can do whatever you want with it provided you don’t violate any building code or HOA rule. You can paint your walls any color you like, build a deck or patio, change the fixtures, and so on. You can make your home truly your own, and if you plan to live in the property for a long time, that’s something that can give you immeasurable satisfaction.

  • Sense of belonging and community

    Some of homeownership’s top benefits can only be felt and not seen, but to many, these unseen benefits are the best reasons to buy a house. Foremost of these is a sense of stability and familiarity. If you own your home, you get your very own sanctuary, a place where you and your family can feel you truly belong and can safely retreat to anytime you want.

    Compared to paper assets like stocks and bonds, a house is a tangible asset that you can see and touch. To many, actually experiencing the fruits of their hard work provides a better sense of stability and fulfillment.

    Having your own home also means you’re a permanent part of the community. You can take part in neighborhood events and associations, build long-lasting relationships with the neighbors, participate in community decision-making, and so on. If you’re a renter, you’ll have less motivation and reason to engage in these activities, especially when you know you’ll be moving soon.

Features of luxury homes in Los Angeles

In Los Angeles luxury homes, you can expect a combination of top-of-the-line features and amenities that you typically can’t get in a standard home. These include:

  • Smart home features

    Many luxury homes today are equipped with smart home technology that takes comfort and convenience to the next level. From lighting and window blinds to lawn sprinklers and coffee makers, you can control numerous functions around the home with just a touch of a button on your smartphone or a simple voice command.

  • Entertainment centers

    You can have movie night right in the comfort of your home with your very own entertainment center, complete with reclining seats, mood lighting, and high-definition large screen TV. Some entertainment centers come with game rooms, bars, and similar features for a complete in-home recreation experience.

  • Private gyms

    You no longer have to fight your way through traffic just to go to the gym. Many luxury homes feature a gym or exercise room with the equipment you need for a complete workout. They can also include a spa or sauna for hours of pampering.

  • Swimming pools and outdoor living areas

    In sunny Los Angeles, swimming pools are a must in luxury homes. They’re essential to the highly coveted indoor-outdoor lifestyle that’s all the rage in high-end homes today. Immaculate landscaping and a fully furnished outdoor living area, perhaps with an outdoor kitchen or bar, complete the experience.

  • Gorgeous views

    Whether it’s the city’s skyline, the blue waters of the Pacific, lush hills, or majestic mountains, Los Angeles offers a variety of stunning views that you can enjoy straight from the living room or bedroom of your luxury home.

  • Privacy and security

    With sprawling lots, gated security, and somewhat isolated locations, luxury homes in LA offer the utmost in privacy and safety.

Luxury property types in Los Angeles

A vibrant metropolis with a long and colorful history, Los Angeles boasts a widely varied housing stock composed of single-family homes, condos, townhomes, apartments, duplexes, and multi-family properties.

Luxury home shoppers looking for an opulent mansion or an elegant penthouse are bound to find the property that’s perfect for them.

  • Single-family homes and estates

    Los Angeles’s many gated communities feature stunning estates, mansions, and spacious homes that come in a wide range of prices and sizes. They boast such features as distinctive architecture, multiple rooms, top-of-the-line finishes and amenities, and more. These properties include legendary estates that served as home to some of LA’s most famous residents, Mid-Century modern masterpieces, and contemporary homes with state-of-the-art designs and features.

  • Beachfront properties

    Los Angeles’s amazing oceanfront communities are some of its most prized treasures. Whether in exclusive Malibu or eclectic Venice Beach, luxury waterfront homes in Los Angeles are designed to give you the best access to the beach and capture stunning views of the ocean and surrounding hillsides.

  • Luxury condos

    Los Angeles’s skyline is dotted with skyscrapers that house some of the most exclusive and luxurious condos and apartments in the world. Boasting excellent locations in the heart of the metro’s financial and commercial districts or in nearby areas, these condos cater to everyone from single professionals to families and retirees who prefer the convenience of condo living over maintaining a single-family home.

  • Villas and townhomes

    Villas and townhomes are among the latest property types to be added to the Los Angeles luxury real estate market. They mostly attract second home and investment property buyers, many of whom offer them to short-term renters looking for luxury accommodations in the metro.

Our luxury listings

If you’re looking for the kind of luxury living that only Los Angeles can offer, start by browsing these exclusive Beverly Hills listings to find the perfect home.

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