- Elon Musk has made a big show of his divestment from L.A. real estate.
- While a grand gesture, its probably just a sensible move to boost liquidity in his finances.
- Californias housing market looks ripe for a correction, according to analysts.
Tesla CEO Elon Musk is selling $97 million of L.A. real estate to be unburdened from the strains of physical possessions. Heres whats really going on and what it says about the mood in Californias once-mighty housing market.
Elon Musk Moves to Cash Out of His L.A. Real Estate
Does it make financial sense for the billionaire to dump his mansions in the hills during the coronavirus pandemic? Absolutely.
Nervousness abounds in the formerly white-hot California housing market.
We reached out to three individuals in the wealth management, real estate investment, and home sales sectors. All of them anticipate Los Angeles housing market to take a dip.
The most commonly repeated theme was the need for buyers to be patient, and sellers to be as proactive as possible.
LA-based Scott Hofman, the managing partner at Ratio Capital, tells CCN.com:
The macroeconomic conditions make it very difficult to argue for any meaningful increase in home prices in the near future. Without any serious progress on COVID-19, it isnt hard to make the case for a decline. If you were considering selling a property anyway, sooner is better than later from our perspective.
Now cross-section this prevailing expert opinion with the moves that Elon Musk is making in the U.S. housing market. With numerous homes for sale, concentrated on the West Side of Los Angeles, its obvious he is being advised (or making the personal decision) to create some liquidity.
Theres nothing wrong with that, but the image Musk is paintingthat of a man decoupling from the constraints of physical possessionsseems far-fetched.
He isnt getting rid of the capital, just re-allocating it. Despite this, take a look at what Musks followers on Twitter are saying:
The fact is, wealthy individuals in the U.S. (a significant portion of whom just so happen to reside in the lush hills of LA) are getting too nervous about the explosive ramifications of dramatically rising unemployment around the world. Hopes of a V-shaped recovery are fading, with one renowned Wall Street billionaire calling them a fantasy (video below).
It makes sense to get rid of your most illiquid assets the quickest. For most billionaires, this is real estate, as there are only so many buyers for homes valued above eight-figures.
Musk was probably going to make these transactions anyway; hes just giving it some Steve Jobs-level hype, and leveraging the maximum possible benefit to his brand. He is, after all, famously cash-poor by his own admission.
Californias Housing Market Is Ripe for Profit Taking
Hands up if you know anyone who has ever sold their house to lock in some cash and rent for a while. Everyone? Thats what I thought. Now add in the rapid appreciation that has been seen in LAs housing market over the last few years, and its a no-brainer for the tech billionaire.
Source: Norada Real Estate
Just make sure to keep your eyes on Zillow to see if Elon can sell his beautiful Bel-Air mansions, and if he can, for exactly how much.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Sam Bourgi.
Last modified: May 15, 2020 11:12 PM UTC