Oregon Landlords Getting Smacked Around. How are you responding?

59 Replies

Maybe I'm just going through a little grumpy fit and being melodramatic, but are any other Oregon landlords, particularly Portland area so far, getting to their breaking point yet of how far you can be pushed by political agenda and rules?

I feel like every other month I'm hearing of more policies of power being taken from landlords, statewide rent control, lack of ability to screen tenants, removing no cause terminations, etc. 

What's your tipping point before moving somewhere easier? How do you think this will affect current landlords and also your mentality on buying future rentals?

You are not alone Jason. Owning rentals in Portland city limits has caused many landlords grief. We have to watch developments very closely as to not get caught doing something that can trip you up either from a discrimination (disparate impact) lawsuit, or some new ordinance a city may enact.

My Portland properties have been good to me so very reluctant to give them up. So far being able to screen has not been that hampered, but hard telling what will happen in the future. What we do know is that areas that have rent control have the highest rents.  

I admire the fact you are an advisor who buys RE. Most advisors poo poo real estate in favor of the stock market, at least that has been my experience. 

Hey Jason!

We’re seeing about a pretty even three-way split among our clients in terms of behavior:

One segment of landlords doesn’t seem to be aware of the changes (we’re constantly trying to update all with updated info as it becomes available) and are surprised to hear about them. 

Another segment is doing the math and seriously considering (or already) listing and getting out. 

The last third is super excited at the opportunity. Many of those use some sort of language comparing this to the Great Recession in terms of opportunity to buy. With mom and pops getting out they see this as an opportunity to get in. 

I think a lot of it depends on where you are in life. It’s just no worth it to some accidental landlords while others who are just starting or younger with a longer timeline are willing to put up with it for the longer-term result (likely higher prices and higher rents). 

Mathew

@Jason Powell I know it's not easy but now might be a good time to get out. The market is at a peak so sell the properties off and invest in a more Landlord-friendly state.

@Jeff S. It's the "next wave" of screening rules I'm most worried about, as well as general trend. From what I can gather, landlords will not be able to decline applicants based on most criminal records, past evictions, and others as long as it was longer than 12 months ago. Personally, I feel that an applicant that was evicted 18 months ago is someone you couldn't pay me to accept. And thanks; I do consider myself a different breed of advisor. But I do feel like advisors get a bad rep amongst the real estate crowd. Fact of the matter is, the vast majority of folks out there want something 100% passive that will never cause them personal drama or time. RE is like a side business for most. I preach the owner occ FHA 4 plex to young folks, but almost nobody is interested due to the inconvenience and misaligned spousal goals.

@Mathew Wray Thanks for weighing in! I'm trying to decide which group I'm in. I avoided Portland as the path of least resistance, but now I'm being told that the "Portland rules" will be spread to all of Oregon. That was a shock to the system for sure. I have a hard time mentally processing how this will lead to much higher rents. I can obviously see rent control in NY, San Fran, etc and see they have super high rents, but I guess it's a chicken and the egg scenario; I don't know what preceeded what. I figure it may discourage rental house building...??

@Nathan G.   I tend to agree, and that's the way I feel. The implementation of doing that is a challenge though. I'm fearful of a 1031 exchange into a market I don't know. I hear a LOT of people regretting this decision due to the time pressure. I will have a $250k+ tax bill if I can't pull that off. Speaking of me be grumpy about Oregon, they will shave another 10% off my gain and recapture.  I am in the middle of selling one property though and just paying off my house with it (super unpopular move on BP I'm aware). That one was 25% tax free though. I guess that's my middle ground at the moment. Maybe I'll consider selling another in 2020.

Originally posted by @Jason Powell :

@Jeff S. It's the "next wave" of screening rules I'm most worried about, as well as general trend. From what I can gather, landlords will not be able to decline applicants based on most criminal records, past evictions, and others as long as it was longer than 12 months ago. Personally, I feel that an applicant that was evicted 18 months ago is someone you couldn't pay me to accept. And thanks; I do consider myself a different breed of advisor. But I do feel like advisors get a bad rep amongst the real estate crowd. Fact of the matter is, the vast majority of folks out there want something 100% passive that will never cause them personal drama or time. RE is like a side business for most. I preach the owner occ FHA 4 plex to young folks, but almost nobody is interested due to the inconvenience and misaligned spousal goals.

@Mathew Wray Thanks for weighing in! I'm trying to decide which group I'm in. I avoided Portland as the path of least resistance, but now I'm being told that the "Portland rules" will be spread to all of Oregon. That was a shock to the system for sure. I have a hard time mentally processing how this will lead to much higher rents. I can obviously see rent control in NY, San Fran, etc and see they have super high rents, but I guess it's a chicken and the egg scenario; I don't know what preceeded what. I figure it may discourage rental house building...??

@Nathan G.   I tend to agree, and that's the way I feel. The implementation of doing that is a challenge though. I'm fearful of a 1031 exchange into a market I don't know. I hear a LOT of people regretting this decision due to the time pressure. I will have a $250k+ tax bill if I can't pull that off. Speaking of me be grumpy about Oregon, they will shave another 10% off my gain and recapture.  I am in the middle of selling one property though and just paying off my house with it (super unpopular move on BP I'm aware). That one was 25% tax free though. I guess that's my middle ground at the moment. Maybe I'll consider selling another in 2020.

dont listen to the max leverage max door BP crowd.. nothing wrong with paid for assets... we moved to NV for tax purposes. the clincher for me last year I owed 9500 personally in Metro tax  LOL.. 

although i own no rentals anymore.. we do very well building and selling new construction in Portlandia and suburbs. In talking with the owner of Cambridge management the other day when i ran into him at PDX.. he thinks its a little moot.. as in you can raise rents 7% so for stabilized market rent properties.. should not affect them as rents generally dont go up 7% year over year.. plus it allows a CPI raise as well.  but i guess if you have an under performing asset so many value add folks look for that could stymie heavy duty remodels.. 

what would concern me though is the having to accept criminals and those evicted.. but most of the folks in Know in PDX when they put up a rental at least an SFR and i know there are not a ton of SFR rentals.. but they usually get 20 applications. with many over 700 fico's etc.. so seems to me unless the renter class goes south and it stays the same.. you simply take the most qualified and the most qualified is not someone who is a criminal and or been evicted.

and I agree with you on the 4 plex houses hack.. its a tough one when mom does not want to live in the rental.. Mom wants to buy one of my new homes with everything first class and brand new.. so to that end i like it :) but I look back at 4 plexs in beaverton that my wife brokered in the low 300s and today they are easily in the 600s and even though they only returned 4 to 5% cash flow COC look at that fantastic IRR.. dont get confused on out of state cash flow vis a vi west coast IRR.. if its just cash flow you want buy notes.. much less work higher return. And great for IRA s also there is a company in PDX that pays 6% with a 30 day call.. I like that option as well.

@Jason Powell The screening problem is really scary. I go to all the meetings the city has and I can tell you there is a growing anger between the haves and the have not's. Think about a rental strike that goes big where the court gets tied up with landlords trying to evict but there are so many it can take forever, meanwhile you have no income. Saw this on a person's T-shirt "I support a rental strike."

I have long-term tenants with very little debt and while my rents are low they are high compared to just a few years ago. It wasn't very long ago I was charging a $1 a sq ft now some are charging $2. 

I had always said when I could not screen my tenants I would leave. Since I am retired I rely on rent as some of my income. I am watching everything very closely!

@Jay Hinrichs very sad to hear you leaving our city. Since you were a transplant from CA it probably not as hard to move. Have been here my entire life so all our friends and all are here. I like the Vegas area but...the other half likes grand kids more! It took a few years of exploring to figure out Henderson is where it is at IMO but then the good deals were gone, although new construction prices are shockingly low. Are you familiar with "Ignite Funding?" They finance raw land for developers in Nevada and other states. Pay 10% with just a 10k minimum.

Grew up an hour north of Portland, and I dearly love it there, so please understand when I say this:

Move to Texas.  Everybody else is.  We'll leave the light on for ya.

@Jay Hinrichs So the metro tax was the straw that broke your back huh? lol  There's only so much a person can get poked before going somewhere else. I've got clients in the area that went on a long vacation and came back to that metro tax, art tax, and a big property tax hike in the mail. That was their last straw before moving to Florida six months later. They own elder care facilities in the area and the minimum wage hike is killing them too.

Much agreed about the "West Coast Appreciation" being written off by many. My numbers on my first Beaverton plex were close to what you mentioned. Purchase of 415k and selling now for 740k net with marginal improvements. IRR due to the short hold time and tiny FHA down payment on that was north of 75%. Not too shabby for a dumb lucky kid starting out! But most on BP would have discouraged buying that at the time due to the rents being too low compared to purchase price.

@Jeff S.   I agree with the screening being by far my #1 concern. It's slowly turning into a government run "private" business with nobody risking anything but the landlords. That's why I'm really giving this a lot of thought and value everyone's opinions here. I fear working my tail off to build a mini rental empire here and then having the State change the rules on me when I'm so deeply entrenched into cap gains and deprecated properties.

I don't know what the next national "downturn" will look like, but I've been feeling like it will have a bigger social impact than past downturns have due to a rise in populism, and animosity between the haves and have-nots as you put it. I do believe that's gotten a lot worse across the country. The "evil top 0.1%" seems to now be targeted at the top 10% by the protesters. 

12 months for a felony to not be considered is pretty useless.  Many felons are not even out of prison after 12 months.  They could go straight from prison to a mandatory acceptance rental!  … while still on probation!  

Glad I am not in OR.  That would bother me enough to leave if I was there as a landlord.  I won't rent to a violent criminal.

Originally posted by @Jeff S. :

@Jay Hinrichs very sad to hear you leaving our city. Since you were a transplant from CA it probably not as hard to move. Have been here my entire life so all our friends and all are here. I like the Vegas area but...the other half likes grand kids more! It took a few years of exploring to figure out Henderson is where it is at IMO but then the good deals were gone, although new construction prices are shockingly low. Are you familiar with "Ignite Funding?" They finance raw land for developers in Nevada and other states. Pay 10% with just a 10k minimum.

just doing the 6 to 7 months be in Oregon for summers.. we have grandkids in Vegas so that is one thing.. don't know ignite funding but that is certainly a needed niche most HML find land loans to be far to risky and simply wont do them

Originally posted by @Mark Sewell :

Grew up an hour north of Portland, and I dearly love it there, so please understand when I say this:

Move to Texas.  Everybody else is.  We'll leave the light on for ya.

 everytime I connect through Houston and walk up the jet bridge it smells like mold and a petrie dish.. no thanks too much humidity there I spent a year in Jackson MS that was enough humidity for a life time for me. If I am going to do humidity I would only do it in Charleston SC..  but hey its just great we all get to talk about this stuff and how we can move around if we find a notion to.

Originally posted by @Jason Powell :

@Jay Hinrichs So the metro tax was the straw that broke your back huh? lol  There's only so much a person can get poked before going somewhere else. I've got clients in the area that went on a long vacation and came back to that metro tax, art tax, and a big property tax hike in the mail. That was their last straw before moving to Florida six months later. They own elder care facilities in the area and the minimum wage hike is killing them too.

Much agreed about the "West Coast Appreciation" being written off by many. My numbers on my first Beaverton plex were close to what you mentioned. Purchase of 415k and selling now for 740k net with marginal improvements. IRR due to the short hold time and tiny FHA down payment on that was north of 75%. Not too shabby for a dumb lucky kid starting out! But most on BP would have discouraged buying that at the time due to the rents being too low compared to purchase price.

Yup the cash flow is only crowd would have harpooned you.. cash flow is great if you can get a enough of it.. problem is many cant or lose interest or are stymied by financial restrictions etc etc..  

Originally posted by @Jason Powell :

@Jay Hinrichs So the metro tax was the straw that broke your back huh? lol  There's only so much a person can get poked before going somewhere else. I've got clients in the area that went on a long vacation and came back to that metro tax, art tax, and a big property tax hike in the mail. That was their last straw before moving to Florida six months later. They own elder care facilities in the area and the minimum wage hike is killing them too.

Much agreed about the "West Coast Appreciation" being written off by many. My numbers on my first Beaverton plex were close to what you mentioned. Purchase of 415k and selling now for 740k net with marginal improvements. IRR due to the short hold time and tiny FHA down payment on that was north of 75%. Not too shabby for a dumb lucky kid starting out! But most on BP would have discouraged buying that at the time due to the rents being too low compared to purchase price.

Jason, I am that dumb and hopefully lucky kid now as a new investor and first time home buyer in the area and looking to hack my way into a multifamily. However, hearing about all the regulations and changes coming into place is a little worrying to read about when I haven’t even started yet. It’s very inspiring to hear about your Beaverton multifamily though and I hope I get as lucky. 

I will probably continue investing locally because I’ll need to owner occupy the first few but definitely see the next step being out of town investments if I survive the intro period. 

Originally posted by @Charles Han :
Originally posted by @Jason Powell:

@Jay Hinrichs So the metro tax was the straw that broke your back huh? lol  There's only so much a person can get poked before going somewhere else. I've got clients in the area that went on a long vacation and came back to that metro tax, art tax, and a big property tax hike in the mail. That was their last straw before moving to Florida six months later. They own elder care facilities in the area and the minimum wage hike is killing them too.

Much agreed about the "West Coast Appreciation" being written off by many. My numbers on my first Beaverton plex were close to what you mentioned. Purchase of 415k and selling now for 740k net with marginal improvements. IRR due to the short hold time and tiny FHA down payment on that was north of 75%. Not too shabby for a dumb lucky kid starting out! But most on BP would have discouraged buying that at the time due to the rents being too low compared to purchase price.

Jason, I am that dumb and hopefully lucky kid now as a new investor and first time home buyer in the area and looking to hack my way into a multifamily. However, hearing about all the regulations and changes coming into place is a little worrying to read about when I haven’t even started yet. It’s very inspiring to hear about your Beaverton multifamily though and I hope I get as lucky. 

I will probably continue investing locally because I’ll need to owner occupy the first few but definitely see the next step being out of town investments if I survive the intro period. 

check the rules federal law dictates that a owner occ in a 1 to 4 unit does not have to follow federal fair housing.. so I would check with local attorney who knows his or her stuff you maybe exempt if your owner occupying 

Originally posted by @Charles Han :

@Jay Hinrichs That’s great to know! I will look deeper into this and plug in with a lawyer who can help verify. Thanks much. 

 its worth a shot before you just give up..  Its always on all my CE class's for my CA brokers license and my state of Oregon Mortgage Bankers license.. 

Originally posted by @Jay Hinrichs :
Originally posted by @Mark Sewell:

Grew up an hour north of Portland, and I dearly love it there, so please understand when I say this:

Move to Texas.  Everybody else is.  We'll leave the light on for ya.

 everytime I connect through Houston and walk up the jet bridge it smells like mold and a petrie dish.. no thanks too much humidity there I spent a year in Jackson MS that was enough humidity for a life time for me. If I am going to do humidity I would only do it in Charleston SC..  but hey its just great we all get to talk about this stuff and how we can move around if we find a notion to.

I guess it is a good thing I don't live at the airport, Jay.  Funny the humidity doesn't bother me so much, but the one thing I cannot get used to is that it is just so damn flat.  I feel like can climb up on the roof of my house and see Baton Rouge.  At least it is green here.

Margaritas on me if you ever get a real long lay-over and some advance warning.

@Charles Han Don't get discouraged by this. Jay is correct about rules being different for both owner occ. and I believe there is an exception to all these shenanigans if a landlord owns 4 units or less (verify). And you'll "get lucky" too with enough time, although it'll probably take longer than the numbers I indicated due to my entry being in the midst of the RE market just getting out of the pits. It's time IN the market, not timING the market that makes you wealthy over time though. One leg up you can have is finding a great off market deal if you're so inclined. My first one was full priced off the MLS, so it was genuinely luck of market timing. My future deals all had $100k equity the day I signed the paperwork though. That's what I'd focus on in your shoes.

Senate Bill 608 is very bad for business. There will be unintended consequences any time the government starts controlling the private sector. The bill is very poorly written, too many exemptions. They should treat the rental industry as an aggregate and not make it anymore confusing for both the tenant or landlord.  

Why is it that we as a society, don't require elected lawmakers/officials to take and pass a economic's class before taking office?

Oregon will be the first state to pass state wide rent control, If that doesn't send an ominous message to investors then I dont know what will. 

They are also looking to increase taxes by 2 billion this session, Oregon has a serious voting/ spending problem. Oregon, its where young people come to retire.

Originally posted by @Jason Powell :

@Charles Han Don't get discouraged by this. Jay is correct about rules being different for both owner occ. and I believe there is an exception to all these shenanigans if a landlord owns 4 units or less (verify). And you'll "get lucky" too with enough time, although it'll probably take longer than the numbers I indicated due to my entry being in the midst of the RE market just getting out of the pits. It's time IN the market, not timING the market that makes you wealthy over time though. One leg up you can have is finding a great off market deal if you're so inclined. My first one was full priced off the MLS, so it was genuinely luck of market timing. My future deals all had $100k equity the day I signed the paperwork though. That's what I'd focus on in your shoes.

Thanks for this great advice. I’m working with an investor friendly agent who has been passing me pocket listings that I have been offering on. Eventually something will hit and I am definitely in this for the long run. Truly appreciate this feedback!

@Jason Powell I feel it’s death by a thousand cuts. Very few of the new regulations affect my normal modus operandi , but if chubby Eudele and her democratic socialist keep up unopposed, things are gonna get bad fast. I stoped buying property in Multnomah and Washington counties a long time ago, but it’s problematic for sure.

I have to believe the landlords lobbying has been pathetic and I know a lot of developers are sycophants to the city to keep them in their good graces as prime development seems to be doled out to Homer and whoever else can stay in their good graces