The local South Bay real estate market is in such an interesting position this summer. There is a dichotomy facing buyers and sellers, full of mixed signals, making it hard to figure the market’s near-term direction.
On the positive side, we see strength in the home market with ultra-low inventory, few (if any) distressed sales, and record high prices.
On the negative side, we see weakness in the home market with low affordability, high interest rates, and a huge drop in pending sales.
What is a buyer to do with these signals to mitigate their risk? It is really a tough call – especially if you are a first-time home buyer.
If high interest rates are limiting your purchasing power and the cost of living is unnerving, then I urge you to think outside the box of traditional homeownership. Consider occupying an income property to help with affordability, stability, and building wealth.
I have written about this topic before, but it is imperative to touch on it for readers to not lose sight of the investment opportunities in real estate and get creative beyond a typical single-family residence.
It is tough to make the beach cities pencil with income properties and Palos Verdes is essentially an income property desert, but I am going to share a couple beach properties along with lower-priced options away from the beach.
If you are savvy enough to take on this approach, you will be thanking yourself in 10 to 20 years down the road.
Intriguing South Redondo Properties
It is virtually impossible to make Sand Section properties pencil in Hermosa or Manhattan Beach, and even throughout the entire city boundaries beyond the Sand.
That said, there can be a plethora of opportunities in North and South Redondo.
I prefer clients to push for South Redondo as it is the closest thing you will get to beach real estate with reasonable cash generation for the price. Below is a recent sale I wanted to share that would be worth a target if high interest rates or affordability has got you down:
- 2,712 sq ft with two 1-beds and a 2-bed
- Sold for $1,800,000
This huge lot and adorable pre-war units offer so much for the price. If you were to occupy one of the 1-bedrooms units, you could collect another $3,000/month in rent.
With a little extra work to the units, the market rent is at least 50% under-value where you could raise your income levels to $4,500/month easily. That goes a long way.
At 30% down, your payment at 5.25% P&I is around $7,000/mo.
That is a lot of money, but when you apply $3,000 to $4,500/month in rent collection, then that mortgage gets a lot more affordable considering the price and location of the property.
Note: There are many other examples of duplex and triplex sales in Redondo Beach, but the right South Redondo duplex and triplex listings are rare. You must be very selective as not all income properties are created equal in this market.
If you can take the out-of-box approach, you can own the beach without the crazy expensive mortgage payment that comes with a single-family home.
Target Old Torrance Properties
It is still a bit of a reach to really make beach income properties pencil thanks to the current state of interest rates and affordability. If you are willing to go outside of the beach and Palos Verdes, the South Bay has plenty of markets with a lot to offer.
My favorite two submarkets happen to be Old Torrance and Walteria. Let’s look at two active examples:
- 2,988 sq ft with two 3-bed units
- Listed for $1,695,000
This listing offers two huge 3-bed units that give an owner a lot of space, another unit for large income collection, and ownership around $550/sf.
With 30% down and one rental increase, your mortgage would stand at $6,500/month with a rental unit collection close to $3,000/month. Although the overhead is similar to Redondo Beach, you get to enjoy an oversized three-bedroom unit as opposed to a one bed.
If you are looking for more affordability, then look no farther than Old Torrance which is a haven for amazing owner-occupied duplexes and triplexes.
1819 Andreo Avenue
- 1,570 sq ft with a 2-bed and 1-bed
- Listed for $1,120,000
This adorable craftsman property makes owning the South Bay a breeze. The 1-bed unit would bring in around $1,750/month and the 2-bed (with office) would command around $2,750/month.
At 30% down, you can expect a mortgage of about $4,250/month.
Do you live in the one bed and keep that mortgage under $2,000/month? Or spring for the larger two bed home and collect the one-bedroom income? Not to mention there is a rear garage ripe for an ADU (Accessory Dwelling Units) conversion.
This type of listing is a dime a dozen each year in Old Torrance. Old Torrance pencils very well for owner-occupiers and investors alike, a submarket truly filled with opportunity for the savvy buyer.
Interest rates are higher, and the home market is unaffordable, but low inventory and record prices persist. Income properties help mitigate your risk as an owner-occupant, regardless the direction of the market.
If you are ready to buy your first home now, then income properties offer an affordable way to break into homeownership along with offering stability to your personal overhead and investment portfolio over time.
If the beach too expensive even with the extra income, then you really need to take a hard look at Old Torrance. If you want even more affordability, check out income properties in Lomita, North Torrance and certain pockets of Gardena.
While my calculations are an inexact science, they demonstrate how if you get creative and take the road less traveled (skip the single-family home), you can reap the rewards of an excellent investment.
If the market or economy turns, you will be in a much better position with rental income coming in over the sole responsibility of maintaining the overhead on a single-family home. If the market or economy stays strong, you have an affordable home to ride not only appreciation higher but the tide of rising rents.
Improve units for greater rental income, be patient and refinance when rates come down, or add an ADU. The possibilities, safety, and wealth creation are hard to beat.
HAGS….(if you know, you know)
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