Four Things You Can Expect When Leasing Your Vacant Apartment Unit in LA
As a result, self-managing owners who have never leased a unit themselves are left with very few options. While I generally do not get into leasing and operations outside of my own portfolio, I have assisted a couple of folks with the leasing process over the past few months. If you find yourself in a similar position, here are a few things you can expect to see when leasing a vacant apartment unit in LA today.
1. Expect to see many inquiries
People keep saying it...you keep hearing it. There is a major shortage of housing in Los Angeles today. Last year, one of the most active development years in nearly a decade, Los Angeles still fell well short of what it would need to even catch up on the housing shortage. Estimates say the city would need to deliver 100,000 units per year for 10 years before it actually catches up with this shortage. What does this mean for you as a multifamily owner with a vacant unit? Well, assuming your unit looks halfway decent and you are utilizing a free online listing website (i.e. Craigslist, Apartments.com, ForRent.com) you can expect to receive at least 20-30 inquiries in the first few days of marketing your vacancy from prospective renters.
2. Expect to see Millennials
According to population projections from the U.S. Census Bureau, Millennials will surpass Baby Boomers as the nation’s largest living adult generation in 2019, growing to 73 million while Boomers decline to 72 million. With home ownership numbers down among this generation in particular, you can expect that the majority of your applicants will be Millennials. Generally, these renters work in nearby business districts and usually in the tech, entertainment, and media space.
3. Expect to see high Rent-to-Income ratios
Various studies indicate that Los Angeles is among the top cities for "cost-burdened" renters. A "cost-burdened" renter is someone who is paying 30% or more of his/her income for rent. As a landlord, you generally would want to see an applicant's monthly income at least 2.5x the monthly rent. From the rental applications that I have seen come through in the past year or so, that multiple tends to be closer to 2x (and many times less)—meaning that the average applicant's income in Los Angeles is generally not high enough to support the monthly amount that they would need to rent your apartment unit.
4. Expect to see shorter tenancies
College educated Millennials in urban areas may or may not work for startups, but they are subject to company mandates that require relocation on a short-notice. A recent study by Zillow reported that 62% of Millennials will move within 3 years. So, if you are renting your vacant apartment unit to a Millennial renter, there is a good chance that you will be turning that very same unit within 12-36 months (which if you own a rent-controlled property, is not necessarily a bad thing)!
If you have questions about your investment property or the LA multifamily real estate market in general, please contact me at the below.
Senior Investment Associate