Portland Oregon rent control Opportunity knocks ?

Question

I had the good fortune to be the guest speaker this month at My  Rarebird real estate investors club here in Portland.

The owners of the club are two very very sharp guys and hyper tuned into the local market.. to the point I would say they are experts

in rental real estate and the laws surrounding it and the new rent control measures.

ONe thing I thought was interesting when Mike gave short synopsis of the local market for MF  and rentals in general  he said that sales this year are down 50% .. His point was that buyers are just trying to feel out the situation.. and they are pricing that into their offers which sellers are not accepting.. He said that when they put together a contract/offer  they then discount even further for the unknown of the rent control expenses..  He further thinks this is a window in time that sharp buyers will get steeper discounts.. until landlords figure out its not as bad as it appears and investors get back in the game..

We know that rent control in other high priced markets did NOTHING to keep values low they did the opposite..

I had a 150 house SFR portfolio sent my way from a hedge fund that bought in Portland 5 years ago and the partnership has ripened and they want to sell.. the feedback I got when I shopped it around was the same.. big discounts to account for long term tenants and what its going to take to deal with them..

Anyone have any other thoughts on the matter  would you buy in Portland at steep discount like what MIke thinks can occur these days.

Jay Hinrichs · Answer

this may give Vancouver Washington and southern Washington a big lift.. since there is no rent control.

Bill F. · Answer

@Jay Hinrichs There probably is a lollapalooza effect going on in the pricing of the assets as a result of some social proof, distortion by comparison, sense-making... around rent control, that are most likely leading people to overestimating the probability negative outcomes, which in turn leads to under prices assets.

To your question: Upfront, it is a speculative play, so upside to downside risk matters a ton along with the magnitude. If I lose, how big big are my losses and can I cap them? If I win, they better be orders of magnitude larger than my potential loses.

That lends itself to be a much better play for some one like you, who can use six, maybe seven figures to build a  reasonably diverse portfolio in the state and, if they win, great, but if it turns south or takes more time than predicted to work out, has the ability to carry the investment until it rebounds or can take the haircut and go about life.

For the the person liquidating their 401k and grandma's silver to get in on the action, this seems like a bad option, because if it goes bad, then they are most likely facing some sort of cash flow issue, which leads to a large lose of capital and some life changing decisions.

The way the market responds to externalities like this is fascinating to watch. Thanks for posting what you've heard.

Mike Nuss · Answer

@Jay Hinrichs I think the opportunity here is being able to purchase rental property for the current rent, not the proforma rent, which is what "market value" has been the past few years in Portland. I probably could've articulated that better Monday night. Thanks for bringing this around so I could think on that a bit.