Investor Demand for Apartment Buildings Skyrockets in Southern California

The rental market in Southern California is red hot, and demand for apartments continues to skyrocket. With the median sales price for homes increasing, many people in Orange County are seeking properties to rent with manageable monthly payments. However, the demand for apartment buildings from real estate investors is driving up prices, and those prices are being passed along to tenants.

Some apartment buildings, such as the Palm Garden Apartments in Tustin, saw rents increase by $500 within the last few months. Investors recently bought an apartment complex in Anaheim called the Olive Street Apartments and forced all tenants to either sign a new one-year lease or move out. One eight-unit apartment in downtown L.A. recently saw its rent increase from $1,200 to $2,000, forcing many residents to pack up and leave.

Since the end of The Great Recession, which began in 2008, investors have been gobbling up apartment buildings at triple the normal rate. Sometimes new owners are a blessing for some renters. In some cases, new owners will start renovating and adding upgrades such as barbeque pits, fitness centers, storage units and dog parks. However, those renovations and upgrades often lead to increased rents and new owners forcing tenants to sign new leases.

Since vacancies are down and rents are up in Southern California, investors look at apartment buildings like catnip. Over the past six years, rents in Southern California have climbed 29 percent with current monthly rents averaging $1,607. Over the past two years, vacancy rates have hovered around 4.1 percent, according to statistics by the O.C. Register.

The higher rents are due in large part to the staggering cost of buying a home. Home sale's prices in Southern California are soaring, which forces many people to stay in the rental market much longer than they would prefer. However, there is a huge value added upside for investors searching for buildings with below-market monthly rents in need of renovation. Investors buy these properties to raise the rents by adding value through renovations and upgrades, which in turn leaves many residents in need of affordable rents high and dry.



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