Financial Advice for LA Residences

In this episode, we discuss some financial issues unique to people living in Los Angeles including: home prices, rent, probate, capital gains on homes, earthquake insurance, and 1035 exchanges.

Here is the transcript for this episode:

Do you live in Los Angeles or the Southern California area or know somebody who does well in this episode?
We are going to be talking about financial planning issues specific to LA residents in those areas around Los Angeles
This is impact financial planners with Bill and Jason and we the goal here is to make sustainable
responsible impact investing easy and accessible for
Socially conscious investors who want to make a difference with their investments
Exactly and thank you for joining us here today. So
We want to just kind of jump right in and talk a little bit about some of the challenges you might face
with your financial planning
If you’re a resident of the los angeles area or any of the surrounding
Communities or just southern california in general or even greater? California gems? Yeah. A lot of these will apply
Yeah, yeah a plenum. Definitely one of the biggest issues that we find different in in California than other stay –
it’s not unique but the high state taxes and
so you do want to pay special attention to shielding income from taxes because it’s it can be up to
13.3% I mean at higher incomes, of course, it’s it’s graded, but
So you want to take care maxing out 401ks contributing to IRAs?
being careful with
Even bonds, you know municipal bonds tax
free
Investments if if possible. Yeah, definitely if it applies for sure and so
you know, one of the big things of course in addition to higher state income taxes is
home prices, so of course, you know Southern California, especially the Los Angeles area is
Well known for very high home prices versus the rest of the US. So we kind of took a look at some of the
neighborhoods and kind of broke it down on average home prices in those neighborhoods and
If you live in Southern California, this isn’t going to be surprising to you
But if you live somewhere else, this might be a little bit surprising to you. So
It’s incredible that the average home price in the US is two hundred fifty five thousand
And yeah, right
in other areas so Beverly Hills, of course, that’s that’s gonna be one of the higher ones so
Around two and a half million a little over two and a half million. It’s kind of the average home price there. So
Yeah, pretty high
Just kind of going through, you know, Santa Monica 1.8 million
Mm-hmm, Hollywood Hills one and a half roughly
Even you know, Pasadena
Close to 900,000
Malibu not a surprise again. Yeah over well over two million, so
Downtown LA in southern LA even though those aren’t the richest neighborhoods of LA
We’re talking half million dollars for average, you know median home prices. I mean, it’s it’s
Really high compared to the rest of the country, right?
So it definitely makes it a challenge for a lot of people when it comes to financial planning because for one that’s gonna eat up
Generally a large portion of their income. So
That’s something you kind of have to plan for ya rule of thumb as you want your rent or your mortgage
Payments to be about a third or less of your income that might not be practical in in Southern, California
absolutely, and then
You know in addition to that if you’re you’re looking at say purchasing rentals or something like that for income property
for wealthier clients
It’s gonna be a much higher outlay just to purchase a rental property
If you’re looking to get you know some monthly sustainable income from it
So there’s there’s kind of that drawback, but I think to with high real estate prices cost a living just is more expensive
it’s you’re competing every every store every
business needs to pay these super high prices and they need to increase their the cost of
restaurants or of
retail stores any store is gonna be
Have to make up for that that rental or real estate price in their prices. Yeah, but it can’t also work as a benefit. So
A lot of times we’ll see people that retire from you know, the LA area decide to move to another part of the country
They sell their home
Well the value of that home versus you know, what the cost of purchasing a home say in, you know, Phoenix
Arizona or something like that. It’s you know a huge difference
So then they do have sort of like a forced savings plan within that home where they’ve had to pay into it
To build up, you know a value of you know, maybe two million dollars over that
Yeah, just because of that time incredible growth. I mean it
If you got into the real estate market ten years ago. I mean you’ve just seen huge growth and that is a big
portion of your
Portfolio and that can be an issue as well. You could have your portfolio heavy heavy in real estate
Just with your primary residence and not be that diversified. So if there is a housing crash or an issue
That could affect you more than it could affect someone with a more diversified
Diversified Holdings. Yeah, absolutely. So a lot of things to consider around, you know
The higher real estate prices and I just want to mention capital gains. So you get an
Exclusion of two hundred and fifty thousand per person or five hundred thousand per couple on
that first or
On the gain in your house it for most of the country that covers it you pay no capital gains on selling your primary residence
Because the growth isn’t that much in, California
We have seen the increase in value be more than half a million dollars or a quarter of a million if it’s a single person
An in cost basis is the price you paid for it plus the cost of any capital
improvements cost of the sale
So it’s really the difference between that cost basis and your selling price
That’s the capital gain. How much do you make how much did you make on that property?
and again that exclusions
Pretty large. The rule is you have to live there two of the last five years to qualify as a primary residence
but
As a footnote if it was a rental property
You can’t just live in it for two years and then it’s all free or you get this this
total exemption to half a million dollars for a cup
it’s
It’s proportional if you rented it for 10 years and then you lived in it for the last two years. Well only
212 will be deductible. I mean, it’s it’s
Its base and how much of the the life of that property was
While you owned it was rental versus residential
And that’s an issue again a lot of the rest of the country doesn’t deal with mm-hmm and so you know
That’s one of those things where the real estate prices
Kind of turns into a tax issue as well
So it all kind of balls up into one bigger
thing to consider when you’re yeah when you’re living in that that part of the country, so
Beyond that to insurance so
earthquake insurance is something you typically don’t have to have in the majority of the country but in Southern, California
In most places you’re gonna have to have them
Yeah, and it’s a separate policy that doesn’t automatically get covered if you have homeowners insurance, right? Yeah
If you’re building a new home taking earthquakes into consideration that can add additional cost to new construction
or if you’re renovating making sure it meets the codes for
earthquake compliance
Hire car insurance
That seems to be an issue too. So just all kind of rolls into that that higher cost of living higher cost of living
I think that’s something for people
relocating to Southern California just
it’s I mean, I know there’s a lot of online sources to kind of gauge the cost of living but it’s it is
You know, depending on where what your spending pattern is
It’s generally gonna be a bit higher but for good reason, I mean great weather. It’s great. I mean there’s a million good reasons
sure it, you know, there’s there’s certainly the
payoff, there’s the opportunity that comes with living in you know, a business hub like Los Angeles, so
You know it you may have higher cost of living but then you may also have significantly higher salary or higher
You know opportunities to to generate income
So the two oftentimes do so, it’s it’s not all negative
we do see that one of our clients, you know, they they tend to have you know, a higher net worth in general just because
That’s that is just sort of what’s more common in that that area. Yeah, I guess with high real estate
It could be longer commutes if you can find something that fits your price range you may be
commuting more
which isn’t the easiest thing to do in
LA. Yeah
It’s so kind of the role that we play in all of this is that you know
We are financial planners. We can help you take a look at that whole picture and make sure that you know living in Los Angeles
doesn’t cause issues with
Your overall financial plan because there’s certain things
You may not be aware of somebody who doesn’t normally work with clients in that area or doesn’t have a good understanding
of all those issues
Could potentially miss some of the more important points of that. Yeah, and
so we’re impact financial planners calm and
feel free to visit us for a free
Free meeting we do meet with a lot of clients virtually so they don’t have to deal with the commute
It’s it’s a pretty expansive city so we can take that hassle away
Absolutely, and it’s more environmentally friendly. You’re not spending
You know an hour in your car each way
Just to meet with somebody to go over that so that is you know
the other part of the business too is it’s very important to us to
Help our clients really live out their values through their investments. So
We give them options to do that so they can actually make a difference with their investing throughout the globe
You got it to be able to invest in what you want to invest in to match your values engage in shareholder. Advocacy
community investing
And I think that’s very I in the LA community. That’s a very
I
Guess socially conscious. Yeah
Population that’s becoming more and more important to people for sure. Yeah. Yeah, that’s nice Evan the option
All right. Thanks for listening. Yeah, please comment on the video. If you have any questions, we will respond to you directly
And you can also book in appointment with us through our website, which is impact financial planners comm. Yeah. Thanks