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Los Angeles has so much to offer, whether you’re here for the beautiful beaches or the excitement of L.A. nightlife. There are a million reasons to live here. But while there’s a lot to love about calling Los Angeles home, the cost of living is not one of them. The question for many is, can they afford it? Prices in recent years have risen considerably. LA Weekly recently made the sensational claim that “Living in L.A. is officially impossible.”
While that statement does have some truth to it, living in Los Angeles can be more affordable if you know how to stretch your dollars and get the most out of your money. Deciding whether to rent or buy in Los Angeles is a complicated matter. But in the end, the numbers don’t lie. If you can afford to, buying a home will save you money in the long run.
Image by Michael / Flickr
Buying is Still Cheaper Than Renting in Los Angeles
The median cost of a home in Los Angeles now sits at more than $630,000. That’s well over three times the national average of $200,000, according to CNBC. But just because L.A. housing prices are sky high doesn’t mean you should rent instead of buy. If you have good credit and enough cash squirreled away for the down payment, then buying a home is definitely cheaper in the long run.
Due to low-interest rates, buying a home is still 37.7% cheaper than renting a home in Los Angeles. Housing prices have soared in the last few years, but so have rental prices. At its lowest point in February of 2012, the median home price was $373,000. Rental units were consistently low between 2011 and 2013, averaging around $2,400. But median rent in the L.A. area has ballooned to $3,500, so as long as interest rates stay low, buying is still the cheaper option.
Who Should Rent a Home in Los Angeles
Even with soaring rent prices, not everyone can afford to buy a home in Los Angeles. In order to get favorable interest rates for a mortgage, you must have good credit. It’s also preferable to have 20 percent to put down on a house, although many loan programs allow for a down payment as low as 3.5 percent.
When it comes to affording the average rent, you’ll still need upfront cash. Take the average $3,500 price tag and consider that you’ll need first and last month’s rent upfront—that’s $7,000. Still, it’s considerably less than you’ll need for a down payment at any percentage.
There are, of course, other considerations that make renting more feasible. A lease likely only lasts for one year, whereas a mortgage will last much, much longer. Rental insurance is also much cheaper than homeowners insurance, averaging around $1,000 per year right now in Los Angeles.
It’s not always about money, however. L.A. is a rich and diverse place. Buying a home means staying in one place longer. If you want to get to know different neighborhoods within Los Angeles, there’s no better say than to live in them. Moving every year or so maybe a hassle for some, but for others, it may be the perfect opportunity to explore a new place and immerse yourself in a new community.
Whether you buy or rent is largely up to your circumstances and your disposition. You need to make the decision based not just on your financial circumstances but also your life and your lifestyle. Either way, Los Angeles is a great place to live and maybe impossible to leave.