Risks
Below is our list of some but not all of the risks you should consider before investing in Los Angeles real estate:
- Earthquakes:
We haven’t had a big earthquake in Los Angeles since Northridge in 1994. When we have one, you need both the cash reserves to make repairs as necessary to your property and you need to have the confidence to buy property when everyone else in LA wants to sell.
- Liquidity:
Selling property fast is very expensive as it almost always necessitates a steep discount to market price. If there is any likelihood that you will need to get your capital out on short notice, you should probably not in invest in real estate.
- Financing Risk:
Because real estate is a highly leveraged purchase, mortgage rates matter. And as anyone can tell you, rates have moved around a great deal in the past five years. These fluctuations won’t affect the real estate investor during their holding period but they certainly do when it comes time to buy or sell. If you’re trading up to another investment property, it’s probably a wash since rates influence prices of both the property sold and the property bought equally.
- Market Price Risk:
Real estate in Southern California is cyclical. Be prepared to hold properties through each cycle which can last up to 10 years.