Minneapolis and Saint Paul pass rent control!

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Mike MoeBusiness Member
Realtor · Minneapolis, MN · Member since 2017 · 79 posts · 52 votes
4y

I smell opportunity for the well trained investor! Hopefully this super restrictive form of rent control passed in Saint Paul is only a short term headwind. Yes it has to be in place for minimum of a year, but the mayor has already stated while he is for rent control, he wishes to quickly make changes to this policy if it passes to still encourage outside investment and development which is needed in the city . That’s nothing to bank on though, as it isn't easy for him to do that.

While this is in place investors are obviously going to have to analyze deals in Saint Paul differently going forward. The typical value add strategy of rehabbing & increasing rents will need to be scrutinized as the renovation investment may not make sense if rents cannot be raised to account for the rehab. On that same note, investors will definitely need to be sure to check the leases in place on a property before offering. Owners who have kept their rents closer to market will likely be able to charge a premium for their properties at sale as the new owner won't have to worry about never catching the market rents with the 3% cap. This could also put more pressure in Minneapolis investments until things are more clear on what/if/how rent control will be implemented there.

Interesting times for sure. In any market there are ways to make money, things like this just make us as investors have to think about how we can do so with the current situation. Can't change the market, just what you do with it.

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  • Mike MoeBusiness Member
    Realtor · Minneapolis, MN · Member since 2017 · 79 posts · 52 votes
    4y

    I smell opportunity for the well trained investor! Hopefully this super restrictive form of rent control passed in Saint Paul is only a short term headwind. Yes it has to be in place for minimum of a year, but the mayor has already stated while he is for rent control, he wishes to quickly make changes to this policy if it passes to still encourage outside investment and development which is needed in the city . That’s nothing to bank on though, as it isn't easy for him to do that.

    While this is in place investors are obviously going to have to analyze deals in Saint Paul differently going forward. The typical value add strategy of rehabbing & increasing rents will need to be scrutinized as the renovation investment may not make sense if rents cannot be raised to account for the rehab. On that same note, investors will definitely need to be sure to check the leases in place on a property before offering. Owners who have kept their rents closer to market will likely be able to charge a premium for their properties at sale as the new owner won't have to worry about never catching the market rents with the 3% cap. This could also put more pressure in Minneapolis investments until things are more clear on what/if/how rent control will be implemented there.

    Interesting times for sure. In any market there are ways to make money, things like this just make us as investors have to think about how we can do so with the current situation. Can't change the market, just what you do with it.

    Superior Real Estate Team537 Reviews
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  • LeAnn RileyBusiness Member
    Real Estate Broker · Minneapolis, MN · Member since 2015 · 116 posts · 67 votes
    4y

    Rent control when it happens is a hit for landlords in both cities. In Mpls it will be up to the Council to enact something. In St Paul, it is voted upon at the 3% cap but needs interpretation and guidelines. 

    I believe we will see leases having added utility fees, parking fees, laundry fees and other newly created methods of keeping up with inflation and taxes as an owner. I am already seeing some creative terms in leases in preparation for this if it happened. I agree with @Mike Moe that this is opportunity - maybe some will list for sale right now as they don't want to wait and see what happens in Mpls. 

    Today had a discussion about buying a duplex - owner occupy a unit. Therefore no rental for a year. Then what would be the basis for a 3% increase on what????.  It wasn't a rental so then you could put it at market rate? That would be a great opportunity for house hackers. As I said, we don't know the parameters yet.

    It all boils down to working with a team that understands the regulations, especially if you hire a property manager or get educated if you are going to be a landlord on what works according to the rules. As Realtors, we need to keep up on what is happening so we can help buyers be in tune. Great question, Jordan.

    1Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    4y

    I have so many questions....

    1) how does the gov track rents or implement this?  they have to collect all the existing rents and then they track it from there?

    2) how is rents determined for a owner occupied property that is converted to a rental?

    3) how are concession handled? if i give a month of free rent

    4) is there a date this goes in affect in St paul...i thought i heard May 1st

    5) seems most cities allow for adjustment to market on a turnover...why is st paul being so restrictive.

    1Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    4y

    @Randy Bloch

    Implementation is as of the date it passed.  St Paul city council hasn't yet figured out what it all means and how they are going to pay for the staff to monitor and enforce this.  In Oakland, they had to add 24 full time staff for something similar.  That's about $2.0 million/year.  Don't think anyone understands the government bureaucracy involved in creating a new system from scratch.  Can you imagine the data base involved in setting and tracking every apartment's rent?  That's 70,000 licenses in St Paul.  I think you will begin to see a plethora of new "fees" added to rents.

    5Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    4y

    Minneapolis vote was to allow city council to define? So it nothing right now.  St. Paul I thought I heard may 1st date…maybe I heard wrong.

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    4y

    @Randy Bloch- The people that wrote the proposal put May 1st but obviously didn't understand how the rules/voting work on a charter change.  A referendum like this goes in effect once the vote is confirmed.  Just points to how poorly this was orchestrated.

    3Reply
  • Adam Widder
    Real Estate Agent · Minneapolis, MN · Member since 2017 · 138 posts · 87 votes
    4y

    Seems that May 1 2022 is date they're sticking too, although @Bruce Runn is correct, it should be today. Would be an interesting exercise for the city if all of the sudden questions were being sent to the city from Landlords. They have no way to process this without a department so it's kind of a wild wild west. 

    People have been so down about this, it's kind of frustrating to see how people are debbie downers. There's rental investors making money in every market and every neighborhood on the globe and likely doing it ethically too. I don't think the Sky is falling. To think your property or rental is now a bad investment is likely false or limiting belief.

    One aspect, now you don't have to estimate rent, just raise it 3% every year! Done, easy! 

    1Reply
  • Randy Bloch
    Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
    4y

    @Adam Widder

    The difference I see is as written today this is one of the most restrictive rent control in the US ever.  It allows no chance to get the property up to market if you are below market Rent and no consideration for inflation.  

    0Reply
  • Adam Widder
    Real Estate Agent · Minneapolis, MN · Member since 2017 · 138 posts · 87 votes
    4y

    @Randy Bloch 100% I've read the whole thing and yes it's definitely the most restrictive in the country. But there's going to be investors making money. People will always want to live in one of the cities, imo.

    One exception, that if you make improvements you should be allowed to make a reasonable rate of return. A savvy person will be able to exploit the city for that. I don't think they're prepared to answer that question. Now you have a government deciding what a reasonable rate of return is for private investors. It just get so grey. 

    1Reply
  • Bill Smith
    Member since 2021 · 16 posts · 1 vote
    4y

    Interesting discussion.  I am in the middle of possibly buying 10-16 unit buildings in both Minneapolis and St. Paul.  Are lenders/banks still lending?  If so, will their valuations go down?  Will the interest rates increase on the loans? 

    0Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    @Bill Smith rent control should not affect interest rates, but it will absolutely affect demand for these buildings.  They may not decrease in value, they might, but it will at the very least slow their growth.  And on properties with below-market rents, it will crush their long term value.

    2Reply
  • Bill Smith
    Member since 2021 · 16 posts · 1 vote
    4y

    Thank you Tim.

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    4y

    I'm waiting for landlords who are freaked out and just want out as they don't understand how to make it work.  I'll buy some of their properties then.  The sky isn't falling, the rules just prevent a lot of common sense things from occurring.  I often didn't raise the rent while I had the same tenant, and made up for it when it became vacant.  An ordinance like St Paul would just force me to raise everyone's rent 3% every year.  How does that help current renters?  My 10 year average increase was 1.8%.  Over that time, an apartment would be approx $120/month more expensive under a rent control scenario versus how I did it.

    4Reply
  • Kenneth Freire
    Minneapolis, MN · Member since 2016 · 30 posts · 19 votes
    4y

    @Bruce Runn I appreciate you bringing this to a rookie REI's attention. :)

    You are right that I rarely raised my limits until a vacancy occurred but now it'll just push me to increase 3% every year while coming up with creative means if need be. 

    2Reply
  • Tyrone Dennis
    Member since 2020 · 23 posts · 18 votes
    4y

    I'm in the Twin Cities.  Bruce Runn I like your outlook and insight on this matter.

    Thanks for sharing.

    2Reply
  • James Gilson
    Member since 2021 · 11 posts · 3 votes
    4y

    Good afternoon,

    I looked at the City of Saint Paul website, and read over the following page: 
    Rent Stabilization Rules and Processes | Saint Paul Minnesota (stpaul.gov)

    Based on what I see, landlords can raise rent 3% every year no questions asked. However, landlords also have the option to "Self-Certify" a rent increase greater than 3% but less than 8%. Self-certifications are subject to an audit by the city. Landlords who want to go this route have to fill out the following forms (the second is not mandatory but suggested):
    Request for Rent Increase Greater Than 3% - Landlord Application (office.com)
    Landlord MNOI - Cap Improvement Worksheet.pdf (stpaul.gov)

    Additionally, landlords can raise rent by greater than 8% by submitting a request which is then reviewed by the city.

    Has anyone successfully increased rent greater than 3% but less than 8% by using the self-certification process? Is inflation/CPI increases valid justification to increase the rent greater than 3%? On page 15 of this worksheet Landlord MNOI - Cap Improvement Worksheet.pdf (stpaul.gov) it gives a line for Percent Annual Increase CPI. I need to go through the whole worksheet for my property but am hoping someone already has experience with this process.

    Thank you 


    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    4y

    @Jordan Moorhead Wow, I am not in your area but this looks like a bear.  Onerous,  bureacratic and requiring alot of administration.  It practically assures that bigger organizations will be the ones who have the bandwith to increase above 3%. 

    I am also wondering how this base occupancy increase would not be discriminatory and run afoul of HUD. Families come in all shapes and sizes these days.

    @James Gilson I hope you find someone who did this. It looks like you could also argue exceptional circumstances in the base year which given the impact of the pandemic may be true.

    0Reply
  • Dakota Mivshek
    Real Estate Broker · Miami-Denver-Austin · Member since 2015 · 91 posts · 32 votes
    4y

    To confirm, this is St.Paul specific, correct? What regulations exist in Minneapolis? 

    0Reply
  • Adam Sullivan
    Real Estate Agent · Minneapolis, MN · Member since 2017 · 13 posts · 6 votes
    4y

    @Dakota Mivshek - Yes, St. Paul specific. Nothing in place in Minneapolis at this time other than that the city voted the council's "ability" to enact something. From what I know, nothing has been proposed yet but they have a history of following St. Paul.

    2Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    4y

    Minneapolis doesn't have a history of fallowing St Paul, rather St Paul tends to follow Minneapolis- 

    2Reply
  • Willie Argo
    Minneapolis · Member since 2019 · 10 posts · 3 votes
    4y

    I spoke to a council member a while back and they said rent control in Minneapolis is not going to happen, they don't have the votes on the city council...for whatever that is worth!

    2Reply
  • Alex Talcott
    Attorney · Durham, NH · Member since 2019 · 292 posts · 126 votes
    4y

    Minnesota may be the most populous state where I do not personally know anyone to have invested.

    0Reply
  • Wendy Man
    Member since 2019 · 104 posts · 35 votes
    4y

    Minneapolis has convened a 25 member working group to discuss rent control with the goal to make a proposal for voting next year.  https://lims.minneapolismn.gov...

    Look like the first meeting will be September 13.

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    4y

    After the initial meeting, they are meeting once a week for 10 weeks.

    1Reply
  • Wendy Man
    Member since 2019 · 104 posts · 35 votes
    4y

    St Paul city council to vote on package of changes to rent control next week.

    https://minnesotareformer.com/...

    "Under a package of amendments the council will vote on Sept. 14, new construction will be exempted for 20 years; rents may rise more in years with high inflation; and landlords may raise rents as much as they please after a tenant moves out in what’s called “vacancy decontrol.”"

    3Reply
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