Today’s topic is one that’s becoming more and more popular in multiple areas of the country, and that’s rent control. Recently, the whole state of Oregon passed rent control laws, and now some revisions are being made in several cities.
We asked Scott to give us an idea of what’s happening with rent control in Portland and throughout Oregon.
Portland’s Real Estate Market
Portland is very progressive and not the only region with rent control laws. The trend recently has been for states to shift the rulebooks more towards resident protections. Understanding the local Portland economics is important because when you are talking about rent controls, there is always a driving force behind why rent control is being implemented.
Portland has been one of the hottest investment markets in the nation for quite a long time. It’s also had an acute housing shortage. This has created expensive rents, and many residents are struggling to pay for housing. So, Senate Bill 608 was passed in February of 2017.
Understanding Senate Bill 608
There are two main parts of this bill.
The first is an actual cap on rents. There are a lot of exceptions. For example, if a home is 15 years old or newer, it’s fully exempt because they want to keep driving the development and construction of new homes. But, if the home is more than 15 years old, landlords are limited to a seven percent rental increase, plus the CPI or Consumer Price Index. Over the last two years, it has resulted in a rent increase that can go no higher than 10 percent.
This is pretty reasonable and not terribly limited. As long as you are staying close to market rents, a 10 percent increase is not going to limit your profitability or returns in Oregon.
The second part of this bill addressed no-cause evictions.
Most people associate the word eviction with being forced out for nonpayment of rent. That might be true but there is also a no-cause eviction, and that typically means a landlord is not renewing a lease. The big change in Oregon is that if the resident has been in the property for more than one year, landlords cannot do a no-cause eviction or ask for the property back with a 30-day notice period.
This is significant. It applies to month-to-month residents as well if they’ve been living in the home for more than a year. This, combined with the law that says you can only increase rents once a year means that you have a bizarre leasing situation. If you have a vacancy on February 1 and you want to fill it, you might do a five or six-month lease so you’re at the point where the next vacancy is in the summer. But in Portland, the new laws mean your lease end date and the date you increase your rent are likely to be two different dates.
The problem for landlords is that this provides a much shorter window of time to determine whether this is a resident you’d like to keep. Waiting out a full year before you decide whether you want to renew the lease is no longer possible. It gets you in trouble because it doesn’t allow you to do a no-cause eviction, in which you simply decide to look for a new resident or do something else with your property.
We’re now recommending an 11-month lease instead of a full year lease. This is the only way to maintain leverage when it comes to removing residents we’d rather not work with. In the past, you could remove a resident with a 30-day notice and get your property back. Now, you need to have a documented reason to evict the resident, such as nonpayment of rent, lease violations, or criminal activity. That’s not possible anymore.
Portland Property Management and Legal Knowledge
Understanding these laws is critical, and many investors aren’t even aware of them. When you read the legislation, you can either trust your own ability to interpret the laws or you need to hire a really good real estate attorney. You can also hire a good Portland property management firm that will know the rule book and handle the legal issues for you.
Rent control and eviction laws are different depending where you are in Oregon. With the housing shortage, Portland has a stricter rulebook than the rest of the state. There are additional new rules on security deposits and accounting restrictions.
You’re running a business when you invest in a property and rent it out in Portland. Businesses have laws, and it is your responsibility to abide by these laws and regulations. You have to take this seriously because the government takes this seriously and they are going to hold you accountable.
Don’t try and figure out all the different laws on your own. As we said earlier, laws are always changing. They’re always being updated depending on the market and the people who are in power. And the trend both nationally and in Portland is to move closer to a tenant-friendly set of laws and regulations. This means you have to know exactly how the laws affect your properties and your investments.
If you have any questions about rent control in Portland, Oregon, please contact us at Mynd Property Management. We have processes in place to protect our owners and investors against the problems that can be encountered with rent control and evictions.
You can also visit our Facebook group of investors, which is called Master Mynd. It’s a real estate investors’ club, where you can exchange ideas with other owners. Check out our weekly podcast as well, called The Myndful Investor. We invite leaders in real estate and property management to talk about their success and, more importantly, their failures. There’s a lot to learn from this relatable content.