Duplexes are a balanced property type, great for beginner investors and seasoned veterans like Christina.
This well-rounded property type excels in competitive markets because of its accessibility and versatility, and there are few markets more competitive than the Los Angeles real estate market.
Buying a duplex in Los Angeles County is an effective way to break into California real estate. Here’s what you need to know about buying an LA duplex.
What’s a Duplex?
Duplexes are properties with two residential units within the confines of the same building. Generally, they look like single-family homes with two distinct halves of the square footage housing two different tenants.
Duplexes are a great option for young families; their size and relatively lower home prices make them more accessible for first-time home buyers than the multi-family homes for sale in posh neighborhoods like Beverly Hills.
There are various kinds of duplexes, including:
- Over-under style duplexes: where one unit is located on the top floor and the other on the ground floor.
- Side-by-side style duplexes: where the building is split down the middle with units on either side.
For investment purposes, duplexes are primarily used as condos or rental properties. Leasing residential real estate has several benefits for property owners.
What Are the Benefits of Rental Properties?
- High cash flow
- Hedge against inflation
- Tax benefits
High Cash Flow of Duplexes
Cash flow refers to the amount of money going into and out of an asset. A higher net cash flow of an asset indicates that more money is coming out of it than going into it.
Rental properties have high cash flow baked into them. The monthly rental payments agreed upon by the landlord and tenant in the lease establish what the property owner can expect to receive from the asset.
As the property owner sets rent, rental properties retain a degree of control that other assets don’t have. Investors can effectively name their prices within the context of the local rental market.
Compared to other asset classes that allow virtually zero control over the asset’s income generation, rental properties like duplexes present the opportunity to actively manage the property’s cash flow for the best results.
Duplexes as an Inflation Hedge
Inflation is becoming an increasingly disruptive factor in economies around the world. The rising prices caused by inflation can severely affect savings. As the dollar grows weaker, it outpaces the interest that grows savings accounts, causing your finances to weaken over time.
Rental properties offset the harmful effects of inflation. Rising prices are understandably factored into the operating expenses of a rental property; when a property becomes more expensive, rents rise with the increasing costs.
Home values grow with inflation, insulating the property owner from the effects of a weakening dollar. On the contrary, inflation can make investment properties even more lucrative as rising prices drive up the rental income earned by the asset.
The Tax Benefits of Duplex Ownership
Property ownership has a high financial threshold to overcome. Considering how expensive real estate can be, especially in competitive markets like Los Angeles, investors can find relief through substantial tax breaks for property owners.
One of the best opportunities to deduct property ownership expenses from your yearly tax sheet is through depreciation. Depreciation allows you to factor in the maintenance costs, renovations, property taxes, and other expenses that add to your tax payments.
The number of write-offs in property ownership can transform the margins on your return and lessen the high costs of property ownership.
What Are the Advantages of a Duplex?
- More than one tenant
- Strong rental market
- Duplexes are increasing in importance
House More Than One Tenant
Duplexes are one property with two units; that confers them a few advantages over a property with a single unit. While triplexes and even fourplexes exist, the duplex is the most common in new construction.
For one, the potential cash flow from one property with two units is higher than a single unit. With two tenants paying rent, or perhaps more, the rental income generated by the property increases.
Additionally, a duplex can be a more secure source of rental income than a single unit. A delinquent tenant can severely disrupt the returns generated by an asset.
With only one tenant, the amount of lost rental income is complete. With multiple tenants in a duplex, the asset can still generate income if one unit becomes delinquent.
Duplexes can provide a better return with stronger assurances of stability.
Duplexes Benefit From a Strong Rental Market
A prolonged vacancy can be a dire setback for property owners, and doubly so for duplexes if both units sit vacant for an extended period. However, the rental market is more robust than in previous decades.
Millennials are the largest age demographic in the United States. Millennial trends indicate that they are more likely to rent than previous generations. With more renters searching for accommodations in the market, the more stable rental properties will be for investors.
Duplexes make good on the strength of the rental market. With more renters, the likelihood of vacancies in your units decreases.
Duplexes Serve a Crucial Function in the Housing Market
Missing middle housing describes a phenomenon wherein accessible, urban-friendly housing and homeownership have declined for the past half-century.
Before WWII, affordable middle housing options were abundant in cities. With mass migration to cities in the early 20th century, middle housing properties like duplexes or townhouses served a crucial function: they provided residents with housing at an affordable purchase price.
Urban planners are advocating the utility of middle housing as a solution to housing crises in cities worldwide. Middle housing, like duplexes, doesn’t just present advantages to cities in general but also their property owners and investors.
Why Buy a Duplex in Los Angeles?
Duplexes provide investors with a fantastic way to enter a highly competitive market like Los Angeles.
Los Angeles is one of the hottest markets in the country and has been for nearly a century. Property values in competitive marketplaces are likely to appreciate faster, and with plenty of people moving to Los Angeles every year, the city has a highly reliable supply of renters.
Duplexes seize on both of these advantages: the high appreciation rate and the steady supply of renters. The asset’s value is highly likely to increase as appreciation for middle housing properties like duplexes can be expected to rise.
Because duplexes are effectively two units in one, property owners are in an advantageous position when they put their units on the market.
With more units to rent out and more opportunities to earn a rental income, investors can recoup their expenses with a much higher cash flow.
How Much Is a Duplex in Los Angeles?
Duplexes in Los Angeles can range anywhere from $600,000 to over 5 million dollars. The listing price for a Los Angeles duplex is highly dependent on the neighborhood where the property is located.
Los Angeles is a vast sprawl of hundreds of neighborhoods spread across the city; some neighborhoods are incredibly high value while others have retained relatively modest prices. Finding the right duplex is a matter of working within a price range that suits your finances.
High-value duplexes (some with values above a million dollars) may have established stability. These high-value properties come at premium prices, but they are usually real estate blue chips.
Alternatively, buying a modestly priced duplex presents an opportunity to generate an explosive return.
Los Angeles has plenty of underpriced neighborhoods relative to its hyper-competitive neighbors. With a trend of rising property values in relatively undervalued areas, 700,000-dollar duplexes could increase significantly soon.
Best Neighborhoods to Buy a Duplex in Los Angeles?
When buying a Los Angeles duplex, there are dozens of neighborhoods to consider. You might think of social hotspots like West Hollywood or proximity to the beach in Long Beach.
Here are a few other neighborhoods that could provide a promising opportunity for acquiring a high-potential duplex.
- Santa Monica
- Venice Beach
- Hancock Park
- Westchester
- Rancho Park
Santa Monica
Santa Monica is a mainstay in high-value Los Angeles real estate, one of the largest neighborhoods in Los Angeles’ hyper-competitive Westside region.
The neighborhood has advantages that make real estate here extremely high value. For one, it’s located right on the beach. Waterfront proximity is a universal, positive influence on property value; the closer a property is to water, the higher its value tends to be.
Santa Monica is at the heart of the Silicon Beach phenomenon: an economic overhaul of the Westside region by deep-pocketed tech companies.
The deepening tech presence’s influence on Santa Monica real estate has been transformative. A Santa Monica duplex could be a highly profitable asset.
Venice Beach
Like Santa Monica, this coastal Westside neighborhood dramatically benefits from its proximity to the water. Furthermore, prominent tech companies have set up offices in Venice Beach following the Silicon Beach phenomenon further south.
Between the waterfront and tech presence, this already established real estate market has steadily risen in value over the past decade — and will likely continue to do so.
Venice Beach is a stand-out neighborhood not only because of tech and its beaches; it also has a rich cultural history as a haven for bohemian spirits.
Young people across the country flock to Venice Beach for the local creative scenes plentifully found in the neighborhood. Altogether, there’s a robust rental market in Venice Beach that makes it the perfect place to buy a duplex.
Hancock Park
Located in central Los Angeles, Hancock Park boasts many features that make it a great neighborhood to buy a duplex.
Its centrality makes it accessible to both the beaches and glamor of the Westside region and the bustle of downtown Los Angeles to its east.
Arterial streets like Beverly Blvd, Wilshire Blvd, and Western Ave help residents connect to the rest of the city. Commuters can find seclusion in Hancock Park homes while being a comfortable distance from the city’s amenities.
Hancock Park is well-balanced, with plenty of commercial spaces, residential areas, and schools in the neighborhood. Duplexes in this area can serve anyone from young, upwardly mobile professionals to new families.
Westchester
Westchester’s most distinct feature is its proximity to LAX, the largest airport in western North America. The surrounding neighborhood is primarily suburban sprawl; residents have more space between residences than in more densely packed areas.
Just south of the Westside neighborhoods of Venice Beach and Playa Del Vista, Westchester has significantly benefited from the tech presence in nearby areas.
For one, the presence of the airport makes it a popular area for tech entrepreneurs coming and going for business purposes. Its suburban feel has also made it all the more attractive to business people ready to settle in less congested areas of Silicon Beach.
A Westchester duplex serves a growing business community and a growing community of settled Los Angelenos.
Rancho Park
Rancho Park is a small residential neighborhood that borders the Westside.
Despite its small size, its real estate potential is vast. This secluded little neighborhood has a strong character that quickly turns it into a hyper-competitive market. Its proximity to the booming Silicon Beach neighborhoods to its west is having an impact on property values.
This neighborhood is primed for success. A Rancho Park duplex in your real estate portfolio could be one of the most impressive assets.
Tips Before Buying a Duplex in LA
The benefits of owning an LA duplex are clear. Acquiring one on your own may be so easy. While properties like duplexes are highly lucrative, they have incredibly high financial thresholds that make it difficult for individual investors to acquire them independently.
Down payments on a million-dollar duplex will be vast. For committed investors, look into loans that will help you get more money down on your property.
Additionally, be sure to consider the operating expenses in the long-term. Maintaining the property, finding tenants, and keeping them is both time-consuming and expensive.
Before you buy, you should have at least half a year’s operating expenses for the property, in addition to the down payment.
Additionally, you may want to consult with an attorney or contractor to settle closing costs. If you plan to go into property ownership independently, the returns are higher, but the time and money involved could be overwhelming.
Invest With a Firm
You don’t need to go alone to get the advantages of real estate ownership.
Investing with a firm is the simplest way to benefit from premium real estate assets; you don’t need to be concerned with property management, taxes, acquiring tenants, and all the other obstacles that make property ownership so demanding.
Firms have far more advantages over individual investors: plentiful resources, networks that connect them to the best opportunities in the city, and experience in the market that helps secure your success.
Invest With the Best
Christina has thrived in the Los Angeles real estate market for over four decades. Over that period, we’ve developed a strategy, the skill set, the networks, and the knowledge that keep us at the front of the pack on premium real estate assets in the city.
Get started with Christina today and secure your finances with high-value real estate for tomorrow.
Sources:
Missing Middle Housing | Congress For New Urbanism
Why Do House Prices Rise Faster In Some Cities? | National Bureau of Economic Research