WA Statewide Rent Control Measure

Seattle, Washington
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WA Statewide Rent Control Measure

Sean SmithBusiness Member
Real Estate Agent · Seattle, WA · Member since 2020 · 162 posts · 105 votes

Over the weekend Washington State Legislature passed controversial rent control measure EHB 1217. It is now out for signature with Governor Bob Ferguson.

For anyone who owns investment real estate in Washington, make sure to read up on the details. If there's information I missed please chime in the comments below.


Residential Housing:

- No rent increases within the first year of tenancy.

- After the first year, yearly rent increases are capped at 7% plus CPI (up to 10%).

- 90-day notice required for rent increases.

- Rents can increase beyond the cap in between tenancies.

- Month-to-month leases cannot differ by more than 5% from term leases.

Manufactured/Mobile Homes:

- No rent increases in the first year of tenancy.

- After the first year, yearly rent increases are capped at 5%.

- A one-time increase of up to 10% is allowed if the tenant sells the mobile home, with prior notice.

- Move-in fees capped at one or two months' rent (if a pet is involved).

- Late fees are tiered based on consecutive months of late payment (2%, 3%, 5%).

Exemptions:

- Buildings under 12 years old, public housing, nonprofit organizations, and owner-occupied duplex, triplex, and fourplexes are exempt.

- Real estate investment trusts, corporations, or LLCs with corporate members are not exempt for residential properties.

I'm curious if anyone here feels this will meaningfully affect their portfolio. How are you adjusting strategy going forward, if at all?

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Brandon VukelichBusiness Member
Real Estate Broker · Tacoma, WA: 🏢 27 LTRs 🏡 3 STRs · Member since 2018 · 546 posts · 457 votes
1y

@Allan C. that assumes CPI stays positive. It ran negative in 2015 so there may be times rent can't be bumped at a full 7 percent. Fortunately, recent CPI trends shows that the max should allow in the 7-10% range.

@Bill B. there isn't really much of an issue for 1st year market rent renewals. Most agree that 7%+ is more than most landlords would normally bump newer, market rent tenants for year 2 or 3 that they wish to renew & have stay anyway. When I owned a PM business in Seattle, we ranged between 0-5% at renewals for great tenants that we wanted to retain. The main issue with all of this are the 1000s and 1000s of tenants currently paying well under market rent (i.e. $1000 when they should be $1600) and the years it will take to catch them up, even at 10% a year rent hikes. I'm mainly considering buyers/new owners of rental properties and inheriting the seriously lagging rent rolls.

Prices for many properties with under market rents will need to come down as buyers will have their hands tied trying to increase rents in a timely manner other than via potential turnover. We'll see...

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  • Allan C.
    Rental Property Investor · Member since 2018 · 826 posts · 810 votes
    1y

    Looks like watered down version of CA 1482. If you're a disciplined operator and increase rents with market then you should be fine. 7% + CPI is also reasonable.  Undisciplined operators will fall behind, and likely have to discount their properties if they sell. 

    What are the lease termination  constraints? Those will also be large influencing factors on sale pricing if rent caps are in place. 

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  • Sean SmithBusiness Member
    OP
    Real Estate Agent · Seattle, WA · Member since 2020 · 162 posts · 105 votes
    1y

    @Allan C.

    I agree. I don't think this will have a huge effect on WA investors' portfolios unless they haven't kept up with market rents.

    I've been working in the CA real estate market since 2015 and have seen how new investors can get nervous and give up. This new WA legislation will actually create chances for savvy, experienced investors - especially in the current stage of the economic cycle.

    Good buying opportunities are coming soon.

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  • Sean SmithBusiness Member
    OP
    Real Estate Agent · Seattle, WA · Member since 2020 · 162 posts · 105 votes
    1y

    @Allan C. no changes were made to lease termination guidelines with EHB 1217 from what I've read

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  • Brandon VukelichBusiness Member
    Real Estate Broker · Tacoma, WA: 🏢 27 LTRs 🏡 3 STRs · Member since 2018 · 546 posts · 457 votes
    1y

    Hey @Sean Smith, quick correction to this: 

    owner-occupied duplex, triplex, and fourplexes are exempt.

    I attended an RHA event yesterday and both attorneys (Sean Flynn and Chris Cutting) leading the seminar could not confirm this applies to all 2-4 unit properties. The best they could say at this time was that they "may" be exempt. So we can't count on it yet. 

    @Allan C. - you are correct about undisciplined operators (more like older, less proactive owners) will need to discount their properties. Ran numbers on a deal today with rents at $1100 that should be $1500 but now we can't bump more than ~$77/mo. Going to take a long time to get to $1500 so prices MUST start reconciling with our new regs.

    Another terrible part about all of this is notice requirements: certified mail on ALL. 

    Some new laws went into effect May 7 but some are pushed to July 27. But of course with normal terrible new policies there are some overlapping and vague issues that will need to be sorted out. #hotmess

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    • Sean SmithBusiness Member
      OP
      Real Estate Agent · Seattle, WA · Member since 2020 · 162 posts · 105 votes
      1y
      Quote from @Brandon Vukelich:

      Hey @Sean Smith, quick correction to this: 

      owner-occupied duplex, triplex, and fourplexes are exempt.

      I attended an RHA event yesterday and both attorneys (Sean Flynn and Chris Cutting) leading the seminar could not confirm this applies to all 2-4 unit properties. The best they could say at this time was that they "may" be exempt. So we can't count on it yet. 

      @Allan C. - you are correct about undisciplined operators (more like older, less proactive owners) will need to discount their properties. Ran numbers on a deal today with rents at $1100 that should be $1500 but now we can't bump more than ~$77/mo. Going to take a long time to get to $1500 so prices MUST start reconciling with our new regs.

      Another terrible part about all of this is notice requirements: certified mail on ALL. 

      Some new laws went into effect May 7 but some are pushed to July 27. But of course with normal terrible new policies there are some overlapping and vague issues that will need to be sorted out. #hotmess


      Thank you for clarifying - this is an important distinction. Owner occupied small-multifamily properties make up a good chunk of the new-investor market. Here's hoping new investors will remain incentivized to jump into the game. Otherwise the 2-4 unit buyer pool may shrink. 

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    • Allan C.
      Rental Property Investor · Member since 2018 · 826 posts · 810 votes
      1y

      @Brandon Vukelich CPI will be greater than 2% so you have 9-10% increases you can apply. 

      0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    1y

    Here’s how I would handle it. 1st year is market rent. At renewal you want them to stay you increase rent to new market with increase up to 7-10. You don’t want them to stay? Assuming you anren’t allowed to evict for no cause you switch to MTM and raise rent 12-15% (with the 5% MTM kicker.). If they stay you’re getting paid to deal with them. If they leave you’re free to reset rent. 

    I think most people would be ok with a minimum 7% rent increase every year. (Assuming you never have negative CPi.) this is “reasonable rent control” and by reasonable I mean it will have zero effects at lowering rent and may actually increase it. As it will finally remind landlords why they don’t want to get behind the 8 ball in rent increases. 

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  • Brandon VukelichBusiness Member
    Real Estate Broker · Tacoma, WA: 🏢 27 LTRs 🏡 3 STRs · Member since 2018 · 546 posts · 457 votes
    1y

    @Allan C. that assumes CPI stays positive. It ran negative in 2015 so there may be times rent can't be bumped at a full 7 percent. Fortunately, recent CPI trends shows that the max should allow in the 7-10% range.

    @Bill B. there isn't really much of an issue for 1st year market rent renewals. Most agree that 7%+ is more than most landlords would normally bump newer, market rent tenants for year 2 or 3 that they wish to renew & have stay anyway. When I owned a PM business in Seattle, we ranged between 0-5% at renewals for great tenants that we wanted to retain. The main issue with all of this are the 1000s and 1000s of tenants currently paying well under market rent (i.e. $1000 when they should be $1600) and the years it will take to catch them up, even at 10% a year rent hikes. I'm mainly considering buyers/new owners of rental properties and inheriting the seriously lagging rent rolls.

    Prices for many properties with under market rents will need to come down as buyers will have their hands tied trying to increase rents in a timely manner other than via potential turnover. We'll see...

    Broker at Multifamily Properties519 Reviews
    WebsiteView Page
    2Reply
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