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Updated about 4 years ago, 09/21/2020
Investors leaving Oregon... Where are you headed?
Oregon recently became the first state in the nation to enact statewide rent control and restrictions on tenant evictions. Senate Bill 608 was signed into law by Gov. Kate Brown on February 28, 2019, taking effect immediately.
Senate Bill 608 sets the maximum that a landlord may increase a tenant’s rent at 7% plus consumer price index (CPI) during a 12-month period. This unprecedented statewide cap applies to month-to-month and fixed-term tenancies, with exceptions for new construction and regulated affordable housing. At the beginning of a new tenancy a landlord may re-set to market rent.
In addition to restrictions on a landlord’s ability to increase rent, Senate Bill 608 restricts a Landlord’s ability to terminate both month-to-month and fixed-term tenancies. After the first 12 months of occupancy a landlord may only terminate a month-to-month tenancy for cause, either tenant-based or landlord-based. If terminating a tenancy for a landlord-based cause, the landlord must give a tenant 90 days’ notice and provide relocation assistance in the amount equal to one month’s rent. Landlords with four or fewer units are exempt from paying relocation expenses. SB 608 further provides that a fixed term tenancy automatically converts to a month-to-month tenancy if not renewed or terminated.
Supporters of the bill argue the new restrictions will provide relief to tenants facing rising rents and limit displacement from landlord evictions in what has been declared a statewide “housing crisis.” However, research on rent control has shown that where legislation works against market forces by setting a cap on what a landlord may charge the impacted communities tend to see stagnation in the market. Where rent control has been enacted, tenants are encouraged to stay in their unit even if their housing needs have changed in an effort to secure their below market rates and markets have seen a reduction in the availability of rental units.
The government’s efforts to preserve housing affordability distort the economic incentives that are otherwise present in the rental market. Landlords are disincentivized from maintenance and repairs that may otherwise be a priority. Individual ownership of rental properties may decrease due to added costs associated with the restrictive parameters of the new law. In the aftermath of SB 608 Oregon could see property owners moving their investments to alternative markets as the benefits of owning property in state are now outweighed by the drawbacks.
Investors: What is your new game plan?
Florida has some very landlord-friendly housing laws and rentals are much cheaper here than in the PNW.
I think you are spot-on in your analysis of what the fall-out is likely to be.
@Patrick Daniel sounds like a good option to me! Thank you, hopefully we can pull it together over here, but only time will tell.
@Celia Moore this scared everyone senseless when it first came out. Like most things, this just forced me to change my strategy a bit. Now if I am looking at a rental property and there are tenants in there paying well below market value, I am aware that I will either be stuck with low rents for a long time, or will have to do a cash-for-keys situation. So those situations highly impact my decision to purchase. I personally avoid everything in Portland though. But I am still highly active in Oregon as a whole. I just do a very thorough screening process and pick really great tenants (fingers crossed every time). And I start the tenant process getting market valued rents, then I won't need to raise my rents more than 7-10% a year.
Out of state! It's a great strategy once you can open up to the possibility. I can buy 3-4 cash flowing properties out of state for the same cash down as I can buy one here. It's a bit of a learning curve but David Greenes book on OOS investing is a game changer.
I help others invest in Portland area but I invest elsewhere.
@Joseph Crunkilton any particular areas out of state you see good opportunity? I’m in Oregon looking to go out of state.
Indy, Cleveland, Columbus, KC, all depends on your preferences. I work with a turnkey provider who can get you set up with a good cash flowing property. Let me know if you want me to refer them.
I highly recommend reading David Greene's book. It helps teach you the system of investing OOS.
@Joseph Crunkilton
Could you shoot me a Message with who your provider is? After looking at the market here, and after I find my primary residence, I’m probably going to look somewhere else to invest.
Originally posted by @Celia Moore:
Oregon recently became the first state in the nation to enact statewide rent control and restrictions on tenant evictions. Senate Bill 608 was signed into law by Gov. Kate Brown on February 28, 2019, taking effect immediately.
Senate Bill 608 sets the maximum that a landlord may increase a tenant’s rent at 7% plus consumer price index (CPI) during a 12-month period. This unprecedented statewide cap applies to month-to-month and fixed-term tenancies, with exceptions for new construction and regulated affordable housing. At the beginning of a new tenancy a landlord may re-set to market rent.
In addition to restrictions on a landlord’s ability to increase rent, Senate Bill 608 restricts a Landlord’s ability to terminate both month-to-month and fixed-term tenancies. After the first 12 months of occupancy a landlord may only terminate a month-to-month tenancy for cause, either tenant-based or landlord-based. If terminating a tenancy for a landlord-based cause, the landlord must give a tenant 90 days’ notice and provide relocation assistance in the amount equal to one month’s rent. Landlords with four or fewer units are exempt from paying relocation expenses. SB 608 further provides that a fixed term tenancy automatically converts to a month-to-month tenancy if not renewed or terminated.
Supporters of the bill argue the new restrictions will provide relief to tenants facing rising rents and limit displacement from landlord evictions in what has been declared a statewide “housing crisis.” However, research on rent control has shown that where legislation works against market forces by setting a cap on what a landlord may charge the impacted communities tend to see stagnation in the market. Where rent control has been enacted, tenants are encouraged to stay in their unit even if their housing needs have changed in an effort to secure their below market rates and markets have seen a reduction in the availability of rental units.
The government’s efforts to preserve housing affordability distort the economic incentives that are otherwise present in the rental market. Landlords are disincentivized from maintenance and repairs that may otherwise be a priority. Individual ownership of rental properties may decrease due to added costs associated with the restrictive parameters of the new law. In the aftermath of SB 608 Oregon could see property owners moving their investments to alternative markets as the benefits of owning property in state are now outweighed by the drawbacks.
Investors: What is your new game plan?
Come to Columbus, Ohio. I increased one of my tenants rent from $400 to $1,095 (market rent) after 30 days of purchasing the property. He is still there 2 years later
- Remington Lyman
#2 Real Estate Agent Contributor
- Realtor
- Boulder, CO
To me, the perceived need for rent control indicates a strong market with good fundamentals like job growth, increasing population, high demand which allows for high annual rent increases. If you look at markets where rent control measures have been passed, they tend to be the highest appreciation, best overall return markets. Meanwhile in places with inexpensive properties and no need for rent control, those areas tend to have poor fundamentals which is why they're less desirable and have lower prices. They may be experiencing post-industrial decline, lack of jobs, shrinking populations and economies, and tend to also have mostly flat or even declining rents.
I'm certainly not an advocate for rent control, but come on 7% plus CPI is 10% which isn't too shabby at the end of the day, and it's definitely better than what you're going to get in most inexpensive markets anyway. Anyone else see the irony in this thread?
Broker apartments in Portland and WA. Most common answers I get:
1) ANY place besides City of Portland which is much more draconian than state laws
2) Vancouver (which is inflating 50% faster than Portland).
3) Spokane/Boise are the new darlings, but it's getting crazy.
4) Phoenix, but seems like you really need to know that market to avoid blackholes
5) Larger guys like SE USA (NC/SC, GA and FL) for growth potential.
Originally posted by @Celia Moore:
@Patrick Daniel sounds like a good option to me! Thank you, hopefully we can pull it together over here, but only time will tell.
I have a lot of Oregon clients buying property here in Kansas City. Cash Flows well with good appreciation.
Yeah, I would second @Remington Lyman, Columbus is a fantastic rental market, great for buy and holds @Celia Moore!
- Zeke Liston
- 614-665-5793
@Celia Moore I am rehabbing my Portland property and will move the equity across the river to Aloha where I live. I like to be able to walk to my rentals and driving across the river takes too long.
You can't beat Portland for long-term investing though. What will those cash flowers be worth 10 years from now when repairs start piling up.
For turnkey properties I work with @Zach Lemaster over at Rent to Retirement. They provide renovated rentals in markets with good cash flow and appreciation. What's nice about OOS is you can acquire 2-3 cash flowing rentals for the same down payment you can buy an SFR here.
This area has had a lot of appreciation but with the trends going on I'm not super confident about the long term. Granted, I'm not an expert by any means but $1000 a month in cash flow sounds better than 200-300 and the possibility of appreciation.
@Chris Parrish I like your new strategy. Where do you target if you are currently avoiding Portland? It will be hard to find a state/city that I love equally... but hopefully something comes around!
@Alex Olson thanks for the tip! Have never looked into the market there.
How have I adjusted? I sold my rentals and use the funds as capital partner on flips. Essentially I act as a hard money lender for flippers. For example, I used the rental proceeds to fund a $500k second position note on a RV park with a $500k first position and worth about $4 million at 12%. I was doing good on my rentals but not this good and don't have to navigate all the changes going on. I've been doing second position notes for about 5 years. Mostly on single family flips. These typically look like a $300k first, $100k second, with ARV mid $500k. The yields are around 8% for a first and 15% for seconds. Two weeks ago, an associate of mine funded a second position note on a 9-plex in Canby Oregon for $100k at 18% interest. These projects come and go weekly.
Originally posted by @Zeke Liston:
Yeah, I would second @Remington Lyman, Columbus is a fantastic rental market, great for buy and holds @Celia Moore!
Thank you for the tips! If you can increase your tenants rent by that much and keep him happily leased, Ohio here I come @Remington Lyman
Thank you @Celia Moore for asking this question - both personally and for my clients the Portland market has been challenging. @Joseph Crunkilton - would like to connect about wholesale deals in and around Portland.
@Joseph Crunkilton thank you!!
Originally posted by @Steve K.:
To me, the perceived need for rent control indicates a strong market with good fundamentals like job growth, increasing population, high demand which allows for high annual rent increases.
To me, it means we import a few coding jobs + Intel + Nike + well=payinmg govt. For the rem, they're struggling much over min wage. Yet they all have to rent. Add in CoP where it's pushing 3 years and $25K/unit in fees to build and you have a lack of inventory.
Texas and PHX have robust economies and no where near the rent increases we do.
Like others have said, finding a good Turnkey provider/partner out in the MidWest is a great option. I know we've been talking to quite a few people from Oregon and California in particular over the past few months. It's best to talk to several of them to see which one best fits you and your overall goals and timeline. Different providers offer different things.
One of our Silicon Valley clients did a 1031 on a property he had out in San Jose last year, and he bought 6 single families, a duplex, and 2 quadplexes from the proceeds. Your dollar goes SO much farther over here. The hardest part is just finding the right person/company to work with. :)
Good luck!
@Celia Moore Cleveland of course , best rental market in the country for the last 10 years.
Good Luck
@Celia Moore I see a steady flow of investors 1031ing into OKC. It's super approachable from a price point perspective, insulated to recession and VERY landlord-friendly laws!