Laws are always changing when it comes to real estate, and in Portland, the new Fair Access In Renting (F.A.I.R.) Act has just been implements, and the new laws that are included in that ordinance have some very serious implications.
These are important things you need to know if you’re renting out a property in Portland. While we aren’t attorneys at Mynd, we are experts in Portland property management. Talk to a lawyer if you need real legal advice, and if you’d like to hear more about what this means for your rental property, we’re giving you a summary of what’s going on.
Today, we’re focused on security deposits and all the things that have changed since March 1 in how landlords can collect, hold, and return deposits. Let’s look at a quick overview of some new requirements.
Security Deposit Disclosures and Interest
Landlords are now required to disclose the financial institution and address where a resident’s security deposit is being held. It’s probably easiest to include this information in your lease agreement. You have it in writing, and tenants can access it.
You also have to disclose if the account that’s holding the money is an interest bearing account or not. If you’re earning interest, the rules imposed are onerous. You’ll need to do some detailed accounting that’s so difficult, you may want to reconsider using an account that earns interest. We aren’t saying you shouldn’t; but, for all practical purposes, we would recommend you hold your resident’s security deposit in a non-interest bearing account. This takes away the ability of a landlord to use security deposit as working capital.
Portland Security Deposit Amounts
This law also imposes a limit on the amount that can be charged in a security deposit. There’s a ceiling that’s equivalent to one month of rent. This is fairly common, and if you’re renting to a high-risk resident, you can go up to a security deposit that’s equal to one-and-a-half month’s rent. It still puts a lot of risk on landlords.
Mandatory Condition Reports and Depreciation Schedules
The biggest implication of this new law as it pertains to security deposits is that owners now have to prepare a mandatory condition report. Not only that, the ongoing maintenance has to be included in the condition report throughout the tenancy. This basically turns property managers and landlords into accountants who have to track deprecation on all assets in a rental property.
When your resident moves into your property, it’s normal to have a move-in condition report that reflects the condition of the property before your resident takes possession. It’s an opportunity to walk around and identify any imperfections that aren’t normal wear and tear.
This requirement expands on that practice.
Now, landlords must identify all the appliances in the rental property. You have to list what’s included, such as the washer and dryer, the dishwasher, the microwave, the stove, the fridge, and any other appliances that are provided. You’ll need to identify those appliances and disclose the actual age of the appliance and the estimated value.
The City of Portland has provided some rules on how to depreciate these appliances.
Appliances must be assumed to depreciate over 15 years. I don’t know how many of you get 15 years out of a dishwasher, but that’s the standard that now has to be used. So, you’re identifying the age of each appliance and the value. You have to support that information as well. You can’t just say that your dishwasher is seven years old and that you spent $500 on it. You’ll need documentation.
Assuming you can prove that your dishwasher is seven years old and was purchased for $500, you’ll have to divide by 15 to get the value today. Then, going forward, there’s an ongoing recordkeeping requirement for any maintenance that’s performed on that dishwasher. If there’s a repair or damage to the dishwasher, you’ll have to document it and add the information to your condition report so you can adjust the depreciation schedule.
There may be damage to that dishwasher when your residents are moving out. Maybe a child jumped on the dishwasher door when it was open and bent it. You can’t just make a random deduction for the cost of that door. You have to calculate the exact depreciation and value.
There now needs to be an effort throughout the tenancy to document and depreciate each appliance in your rental property. Condition reports aren’t just for move-in and move-out anymore.
If it seems like this new legislation is making it impossible to self-manage, you’re right. If you’re a landlord with a career of your own and a family to take care of, finding the time to manage your property and stay up to date with the laws is nearly impossible. You should be very nervous about how these laws will affect what you do and how you manage.
The risk is too high, especially when you consider the amount of money that’s at stake. Your investments are your financial stability, and you don’t want to bring any extra liability onto yourself. Remember – your rental homes are small businesses, and you need to protect them.
If you need some help talking through these complex issues, contact us at Mynd Property Management. We’re happy to help you manage these new legal burdens and talk to you about the new normal in Portland property management.
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.