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Being a Portland Landlord in 2017

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Being a Portland Landlord in 2017I’ve enjoyed living in Portland over the last 21 years, but a lot has changed over those two decades. When I first moved here, Portland felt like a quaint small city. Now, it’s more like a big busy city with all the problems (and benefits) that come along with it. The traffic is terrible, homelessness is a big problem, and the cost of living is rapidly increasing every year. The cost of rental housing in particular has been a huge concern to renters and landlords alike. Portland is still the most affordable big city on the West Coast, but it’s definitely not cheap to live here anymore.

Recently, it’s been very difficult for low income families because the cheaper areas are getting gentrified. Apartments that were once very cheap are being taken over by new owners who need to raise rent to recover their investments. New owners are also anxious to fix up and improve property conditions and they need more income to do that. I just read about 2 buildings that doubled the rent after being sold to new owners. Low income tenants can’t afford that kind of increase and they’ll probably have to move out of the city.

The rental housing crisis

It’s not just the renters that are feeling the squeeze because landlords are now facing more restrictive rental rules.

In 2016, landlords needed to give a 90 day notice to the tenants if we want to increase rent. This was fine with me and I raised rent about 12% at the end of last year. Our tenants are still paying below market average so I didn’t feel too bad about raising rent. Besides, we need to fix up a few more things at our small duplex. The previous owner deferred a lot of the maintenance and we have been updating the property over the last few years.

  • 2014 – New roof and updated the electrical wiring.
  • 2015 – New toilets, new sink, fixed drainage, new paint in one unit, and new hardwood floors.
  • 2016 – Siding repair, new water heater, and minor landscaping.
  • 2017 – External paint and ???.

Tenants Rights

One of the problems we have in Portland is that landlords can issue no-cause evictions and raise rent as much as they’d like. Tenant rights happens to be the current hot issue and the new mayor and a city commissioner ran on that platform last year. Now, we’re starting to get new restrictive laws and landlords are going to feel some pain, too.

On February 2nd, the Portland City Council passed a bill requiring landlords to pay a relocation fee to tenants when they evict them without cause or raise rent more than 10%. (Effective immediately!)

Here’s the actual flat fee schedule landlords would be required to pay under the ordinance:

  • $2,900 for a studio or single room
  • $3,300 for a one-bedroom unit
  • $4,200 for a two-bedroom unit
  • $4,500 for a three-bedroom unit or larger

WTF! Small landlords can’t afford that. I think the 10% increase cap is fair if you own the property for a few years and raised the rent to keep up with the market rate, but this is a big problem for new owners. The price of real estate is expensive here and it’s already hard to generate positive cash flow. If you can’t raise the rent to market rate, then it’s not going to be worth investing in a rental property. I wouldn’t want to fix up our duplex if I can’t raise the rent. The previous landlord deferred a lot of the maintenance and he didn’t raise the rent annually. Repair and maintenance cost a lot of money.

This is just the beginning of more restrictive rules. Some Democratic leaders are championing renter protections and they are pushing for a ban on no-cause evictions and rent control. I agree that renters need some protection, but I don’t like swinging to the other extreme either. Luckily, I have a very good relationship with our tenants and they are responsible renters. I haven’t had to deal with an eviction yet, but my good luck probably won’t last forever.

Evictions

For clarification, I researched evictions a bit. Here are some reasons to issue a for-cause eviction.

  1. The tenant is not paying rent.
  2. The tenant violated the term of the lease agreement. This could be bringing in a pet, adding another tenant, or damaging the property.

I think that’s it for the for-cause eviction. Now let’s see some reasons for no-cause evictions.

  1. Tenants are bad neighbors – noisy, not taking out the trash, etc…
  2. Landlord wants to sell the property.
  3. Landlord wants to remodel the property.
  4. Landlord wants to move into the property.
  5. Landlord wants to rent the property to someone else.
  6. Landlord wants to raise the rent a lot…

Okay, the no-cause evictions favor the landlord quite a bit. They are the owner, though! They are the ones assuming the risks when the market goes down and dealing with problematic renters.

Our situation

Our situation is pretty good at the moment because we have great tenants. They pay the rent on time and we work together to fix the inevitable maintenance problems that crop up. Currently, we have 3 rental units. Two of the units are a little bit below rental market price. One is actually much lower than market price because the tenant has been there for 10 years and the previous owner did not raise the rent for the first 7 years.

We are doing okay as a landlord, but I really don’t want more restrictive rental laws. We plan to move into our small duplex within the next few years and I’d hate to pay to move our tenants. Hopefully, we can work something out when the time comes. One of our tenants is planning to get married so I think they will move out at some point. This will give us an opportunity to move into our duplex. I think we’ll be satisfied with one unit for a few years, but eventually we’ll need both units for our family. My mom is staying with us about 9 months out of the year. She is sharing the room with our kid right now and that’s okay while he’s small. Once he’s older, he’ll want more personal space. Also, we’ll be able to minimize the tax if we turn the duplex into a primary residence.

Alternative investments

If we get more restrictive laws like banning no-cause evictions and freezing/capping rent, then we might have to get out of the rental business entirely. The property price in Portland has risen quite a bit since the housing crash. Now, local real estate makes up about 25% of our net worth and that seems like a bit too much. The market can’t go up forever, right? It might be time to take some profit and diversify. Real estate has been a great investment for us, though. I really don’t want to put a lump sum in the stock market right now because the market seems too high. How can we get out of the local market and still invest in real estate?

  • Invest out of state. I can figure out how to invest in real estate remotely. The price in Portland is too high and it’s hard to generate positive cash flow. I read that other locations offer much better cash flow, but not as much appreciation.
  • Invest in REIT. This is probably the easiest way to invest in real estate. We already have the US and international Vanguard REIT index funds in our portfolio and it is a stress free way to diversify.
  • Real estate crowdfunding. I signed up with RealtyShares earlier this year and invested $8,000. The projected ROI for the commercial property in Arizona is 17% annually over 3 years. Frankly, that kind of ROI is amazing and we’ll have to wait and see if they can deliver.

Landlords in rent control cities

So I’m a bit of a conundrum right now. I don’t want to raise the rent too much, but we may get a 2-3% rent increase cap at some point. Should I just increase the rent 10% every year to head that off? More restrictive laws will just put small landlords in a bind. Are you a landlord in a rent control city? How do you deal with rent control? I assume you just don’t fix anything until a unit turnover. They really should exempt landlords with 4 units or fewer.

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{ 77 comments… add one }
  • Mr. Tako @ Mr. Tako Escapes February 20, 2017, 12:36 am

    The life of a small landlord isn’t all its cracked up to be, eh? Well, at least on the west coast. With all that maintenance, I bet your rental has hardly generated positive cash flow over the last few years. That’s a tough proposition.

    It simply means you have a giant leveraged bet on appreciation in your local market. As it’s 25% of your net worth, you must be pretty confident about that bet.

    Our west coast re-markets have been appreciating like crazy since the recession, but buying more rental property at this point seems risky. I wouldn’t do it.

    I’m sure there are deals to be had, but cap rates are so low it looks risky. Even REITs seem highly priced at this point.

    • retirebyforty February 20, 2017, 8:40 am

      The rental did not generate much income over the last few years. The goal is to move into it at some point so it’s better to fix up now and take the deduction. Once we move in, it’ll all come out of our pocket.
      Yeap, 25% is a bit too high. It’s been good, but we probably should diversify out of the local market.

  • Kenny February 20, 2017, 1:15 am

    Mr RB40, there is NOTHING to be concerned about.

    In New York city and other big cities, you CANNOT say no to even a Crime Laden Tenant a denial to rent out, but, then there are SO MANY ways to reject an application.

    Same with the Eviction. Make your lease VERY TIGHT. My lease (custom written and not sharable) is 12 1/2 pages long. I have words for every little item that brings anything and everything ‘For Cause’ when I end the lease, evict the tenant, and then in addition, I have letters that they sign to keep the area clean, the garbage cans in place, pet refuse handled properly, communications to be professional/clean, etc.

    In managing properties for over 10 years, I have taken EVERY opportunity of a learning lesson to add another sentence, para etc.

    I even have a para now on having the Tenant hire translation services at their cost if they do not understand any part of the lease, or ask questions to the Property Manager (me)! So, they cannot pull a fast one, that I did not understand. Dah! It is total BS that one of the Tenants pulled on me, and before I renewed her lease, I added that para and showed it to her!!

    So, search the net for paras that you can add on bugs, cleanliness, organization, foul language, late fees (mine starts on Day 2 of the month), Utility bills, Insurance, Guns/Weapons etc etc etc. Of course, I am not a lawyer, so I have to search the net for good language whenever I add it, avoiding the big fees that lawyers want to charge for me to do these amendments. I am almost at V21 making these revisions.

    And, then I add the other sample letters that they will get for being Out of Policy as sample letters. So, the entire packet of lease plus supporting materials is approximately 40 pages. And, they get a copy of it also. And, for the real bozos, I have an executive summary on page 1 before the 1st page of the lease starts.

    Too much……Yes. Too little will get you in trouble quickly. Too much will protect you. Choose wisely and run it as a business and not just as one property rental. I have many and have to do it right, but I do it ALL by myself.

    PS: Lots of free leases are available online so build one really well, and slowly transition from old to new to newer to a better one over time. And, when you renew a lease, give them an ENTIRE new packet.

    Good luck.

    • retirebyforty February 20, 2017, 8:42 am

      Thank you for you advice. I guess it’s time to put in a more restrictive lease. Our lease is about 6 pages long and it’s been fine because we had great tenants. I’ll work on it.

      • [email protected] February 20, 2017, 1:56 pm

        Make sure that your lease follows the laws though Joe. Many states have laws about when you can charge late fees and how much they can be, etc. All of those paragraphs are great until someone challenges them and the landlord loses. We use a lease provided to us by our lawyer and it is one he will defend. We’ve asked for a few changes and some he has allowed – others he says will not be upheld in court.

        • Abby February 20, 2017, 4:37 pm

          Would second the above recommendation to use a lawyer to be sure any restrictions you might want to add are legal. Even if just for peace of mind, or to avoid potential headaches, it could be worth it to pay (a la carte) for the legal service upfront.

        • retirebyforty February 21, 2017, 9:21 am

          Thank you for your input. I guess it’s time to get a lawyer. (Yuk!..)

  • Buy, Hold Long February 20, 2017, 1:42 am

    That’s quite an interesting bill to pass so quickly. I hope you can sort it out and do not need to unexpectedly evict them. All the best.

    • retirebyforty February 20, 2017, 8:44 am

      I was surprised at it being effective immediately too. It’s retroactive if the tenant hasn’t left yet. Those apartments that raised the rent will have to shell out quite a bit of cash.

  • Lazy Man and Money February 20, 2017, 3:06 am

    I don’t have properties in rent control areas, so maybe this isn’t relevant.

    I can’t imagine the concept of no-cause evictions. I thought the whole concept of evicting was for a cause such as breaking the lease terms. In MA if you want to raise the rent, you just work it into the next lease terms… usually next year. If you don’t want to rent to them, just don’t offer them a chance to renew.

    If I was a tenant, I would be beyond extremely unhappy if I paid a thousand to move my stuff in a place and 75 days later the landlord decided that he/she just wanted to cash in more and kick me out at my expense.

    • retirebyforty February 20, 2017, 8:47 am

      The no-cause eviction can only be issue to month to month renters. If they want more protection, then they should sign a longer lease. It’s tough to balance landlords and tenants right. Well, as a reader mentioned earlier, it’s time for a more restrictive and detailed lease.

    • jim February 21, 2017, 10:20 am

      “If you don’t want to rent to them, just don’t offer them a chance to renew.”

      That IS a no-cause eviction.

      • Lazy Man and Money February 22, 2017, 7:00 pm

        Maybe things work different in Massachusetts where I’m a landlord or in California where I was a renter.

        My understanding is the lease is for the term of the lease. After that both parties need to agree on a new lease and either party can walk away.

        An eviction is a landlord removing a tenant from a property for violation of the lease. So by definition (according to my understanding) an eviction can’t be “without cause” as the “cause” is necessary for violation.

        I don’t allow month-to-month renters. If I have a great tenant, I might allow them to sign a 6-month lease, but that’s the minimum.

  • Sandy T February 20, 2017, 4:02 am

    So the way I see the new law, landlords are pretty much going to increase rent 9% every year just in case the market goes up. It seems like this could hurt the renter also. A landlord that wouldn’t have risen the rent, now will for fear that they won’t be able to later.
    That being said I still think rentals are a good bet.

    • retirebyforty February 20, 2017, 8:47 am

      That’s what it seems to me. Especially with representatives pushing for rent cap. Landlords is forced to raise rent while they can.

  • Brandon February 20, 2017, 4:27 am

    For some reason these liberal states think it is the landlords job to give cheap housing to everyone. If they want you to continue to rent for under market value and to restrict your right to control your home/investment then they should compensate you for the difference between your current rent and what the property should be rented out for. I bet the city/state has absolutely no problem with raising your property taxes.

    In PA I can evict someone for any reason, it doesn’t matter. If it is for late rent I can usually have them kicked out by a constable in less than 30 days, depending on how quickly I turn in all the right forms. I can also raise rent any amount I like as long as I give 30 days notice for under 10% and 60 days notice for over 10%.

    • retirebyforty February 20, 2017, 8:49 am

      Right, property tax keep going up every year. Renters think the property tax increase is capped at 3%, but that’s not true. Voters pass special bonds and property tax increases more than that. We also need the income to fix up the place.

      • Laura February 20, 2017, 4:56 pm

        …and if you do remodeling that requires an inspection (which flags the county), your property is reassessed at an undoubtedly higher value and your property taxes increase over $1500 (sigh…guess how I know?)

        • retirebyforty February 21, 2017, 9:29 am

          Yeap, we got hit with an increase when we put in a new roof… Not a huge amount, but still annoying.

    • jim February 21, 2017, 10:25 am

      ” I bet the city/state has absolutely no problem with raising your property taxes.”

      Actually :
      Oregon property tax assessment increases are constitutionally limited at 3% a year.

      So yeah… they do have a problem jacking up property taxes.

      • Serious February 22, 2017, 7:46 am

        A percent of a percent gives zero protection.

  • Go Finance Yourself! February 20, 2017, 4:28 am

    That’s tough. I understand offering renters some protection, but you have to take into consideration who is actually take on the risk and reward them for that risk. Investing out of state in a market you’re unfamiliar with would be tough. I know my market very well because I’ve lived in my house for 10 years. But I can’t imagine trying to buy a house in another state for a good value to rent out. Seems like it would be difficult to determine what market value is without the experience and you would need a good realtor to rely on.

    • retirebyforty February 20, 2017, 8:50 am

      I think investing out of state is tough too. You’d need a good team who you can trust. It’s a difficult preposition.

  • Richard February 20, 2017, 4:46 am

    Why did you say there should be an exemption for people with four units or less? Would not a person with eight units have twice the problem? Why do some people support bad policy but then try to get an exemption for themselves. Just support good free market policies. But good luck. I enjoy your posts.

    • retirebyforty February 20, 2017, 8:51 am

      Well, I think 4 units or less is still small time investors. IMO, people with more than 4 units have deeper pockets and resources. Just my opinion.

  • Seeking Information February 20, 2017, 5:18 am

    I am helping out relatives and friends who are new to real estate rentals. I have questions for Joe, Kenny and the other experienced landlords.
    (1) How many months rent do you charge as a rental deposit?
    (2) What criterias do you look for when screening a tenant? For example, how high does the credit score have to be? What kind of questions do you ask during the screening interview?
    (3) What websites do you use to advertise your rental unit so you have a better chance of finding good tenants?
    (4) How would you find out what is the competitive rental price is for your rental unit in your area?
    (5) What websites do you use to get a thorough rental application that list things like garbage, cleaning, etc.
    (6) What websites are good resources for landlords in the NYC and the Bay Area California markets like Domu.com is for the Chicago market?
    (7) How do you find a good eviction lawyer or real estate lawyer?
    (8) How do you find a good handyman?
    (9) How much do you charge potential tenants for credit check and what site do you use?
    (10) Does anyone run criminal background checks on their tenants and what sites do you use?

    • retirebyforty February 20, 2017, 8:53 am

      I answered some of your questions in this previous post.
      http://retireby40.org/how-to-start-investing-in-rental-property/
      3 and 4. You can use Craigslist to see the market price in that location.
      Many of these, I don’t know the answer to. You should try to find a local investor and see if they can help.
      Check BiggerPockets.com. They have a good forum.

  • Brad - MaximizeYourMoney.com February 20, 2017, 5:48 am

    I might look into the real estate crowd-funding options that pay out a monthly portion of proceeds – as an additional passive income stream. Have you experimented with any of those yet?

    • retirebyforty February 20, 2017, 8:54 am

      I just started with RealtyShares. I invested $8,000 and the deal is pending. We’ll have to see if they can deliver. 17% is really high…

  • Justin February 20, 2017, 6:09 am

    Rental rates too expensive? Less restrict what we can charge and maybe folks will magically build more housing without being able to take advantage of increases in price! Good job policy folks. May you enjoy your perpetual housing shortage and question how oh how can you ever remedy it! 🙂

    I would be looking to diversify away from local rentals if you aren’t able to set prices at market rates. Your place might be worth more as a primary residence than as a rental at this point (and that will become increasingly true if you can’t raise rents to keep up with price increases).

    Lots of other markets with high cap rates.

    That said, I’d jack the rates up 10% per year if the market will bear it. And make your leases air tight with tons of FOR CAUSE reasons to terminate (pursuant to existing landlord tenant laws of course). Perhaps paying the rent late by 1 day or 31 days is a valid reason to terminate. Then “re-advertise” at the market rental rates and see if your tenants want to reapply (and pay the application fee of course 🙂 ). I would also limit maintenance and upgrades to a bare minimum if I couldn’t charge market rates. Why not slum lord it if you’re forced to participate in an affordable housing program for tenants that might be pulling in $200-500k (for a couple).

    • retirebyforty February 20, 2017, 8:59 am

      Even for cause eviction is a lot of problem. You’ll have to hire a lawyer, go to court, and all that. Meanwhile the tenant will stop paying rent and trash the place. That’s what happened to my father in law’s rental. It’s best to get good tenant and stay on good term.
      Yes, we are going to turn the duplex into a primary residence. It’ll be a lot easier for us and we’ll save a ton on tax when we sell.
      I think many rentals will turn into a slum too. There will be no incentive to fix up the place. If you don’t like it, then leave… That’s not good for anyone either.

  • snowcanyon February 20, 2017, 6:45 am

    Agreed with Sandy that Portland has locked itself into annual 10% rent increases, which is considerably more than even New York.

    This is such political foolishness, as you point out, with the obvious result of small landlords being driven out of business and larger, more unsympathetic, and more legally savvy landlords moving in on the action. My guess is that those “relocation fees” will end up coming out of a tenant’s deposit, with landlords being less forgiving of the inevitable wear and tear.

    Totally politically motivated- rent control, relocation fees etc all fail without building tons of market-rate units with perhaps a smattering of subsidized ones tossed in. Portland will never do this (I’m not saying they should- it’s a pretty city and perhaps it should stay that way). I do feel for RB40, although I think that it will be fairly easy for him to subvert these changes with aggressive use of deposits, and I assume his tenants will be getting annual rent increases of 10%, no?

    Landlords are not required to stay in business- if it’s not profitable they will opt out, just like they do in San Francisco.

    • retirebyforty February 20, 2017, 9:01 am

      That’s until they put in a 3% rent increase cap.
      The cost of living has just increased too much these last few years. Better paying jobs are here and low income folks can’t adjust. They’ll have to move out further.
      I’ve been reading up on SF and it’s too bad we’re heading that way. It sounds like the rent control just created more problems. I don’t want to subsidize someone making more income than me.

    • jim February 21, 2017, 11:01 am

      I don’t disagree with you about the effectiveness of rent control or this kind of measure, but…

      “Portland has locked itself into annual 10% rent increases”

      No. This ordinance isn’t forcing 10% annual increases.
      No, landlords won’t all just start raising rent 10% because of this law.

      Technically a 10% increase would trigger the ordinance so jacking rent 10% because of the ordinance would make no sense. Maybe you meant 9%? to avoid the rule??

      Some might raise rents because of this, but if they do then well rents are already going up 10%+ a year so its no change…

      Theres no mandate for a landlord to increase rents due to this law.

  • Mrs. Picky Pincher February 20, 2017, 7:04 am

    Oh daaaaang. That really sucks. I haven’t invested in real estate yet because it’s a lot to deal with. I’m not sure if being a landlord would be right for us. Luckily our area is very cheap to live in, but that does mean you get lower-quality tenants. You have to be very selective with who you rent your properties to here. But man, Portland is complicating things quite a bit. I think Texas requires at least two weeks’ notice, but that’s hardly enough for a tenant to find a new place to live. Ugh.

    • retirebyforty February 20, 2017, 9:03 am

      Oh wow, 2 weeks notice is really short. I assume that it’s pretty easy to find a new place to live?
      The population here has grown too fast. The infrastructure haven’t been able to keep up.

  • TPOHappiness February 20, 2017, 7:08 am

    My Uncle is a landlord (has been for years) but is also seeing some more restrictive ordinances come down the pipeline. My wife and I have been considering getting into the landlord business by renting out our home and moving to a different area but you may be onto something though, perhaps it’ll be better to invest in REIT and simply sell the house outright.

    • retirebyforty February 20, 2017, 9:04 am

      It’s a tough decision. The market is great right now so it might be a good time to get out. Good luck!
      What kind of restrictions are you seeing in your area?

  • JP February 20, 2017, 7:17 am

    Seattle has the 8th highest rent rates in the WORLD.

    Anyway; what is your experience with the crowdfunding “realtyshares”?

    Thank you

    • retirebyforty February 20, 2017, 9:07 am

      Yes, I heard Seattle is going through the same problem. Even worse, because it has grown even more than Portland. Property price is crazy up there.
      I just started with RealtyShare so we’ll have to wait and see.

  • Preston Hunt February 20, 2017, 7:48 am

    I don’t think it’s as bad as you make it seem.

    First, this is only a temporary measure for 8-10 months to test it out. Second, it already exempts landlords with only one rental property; so the majority of the “little guys” will be protected. Third, a 10% per year increase means rent can still double every 7 years. That’s not much in the way of price protection.

    It seems the main people who will be hurt are buyers who buy a property, kick out all the tenants, and then do a massive upgrade. Which is exactly what the legislation is targeted at. So these buyers now have an extra cost per unit that needs to be factored in when considering the viability of the project.

    I think it’s flawed legislation for a different reason, which is that the amount is too small to achieve the intended purpose and all costs eventually get passed along to the renters anyway. For a 4-unit building at $2,000,000, this would add at most $18,000 in extra costs to the project, which is really not going to make a difference in the long run. And if the intent is to have affordable housing, the amount of money involved will not make much of a difference in the long run to the renters who are being kicked out.

    Anyway, I own a rental property in Portland and I’m not worried at all about this.

    • retirebyforty February 20, 2017, 9:12 am

      I seriously doubt that this will be temporary. I’m okay with 10% increase, but who is to say that will be the limit. Pretty soon it will be 5%, then inflation. Renters are angry and it’s an easy way to get voted into office.

      I think small landlords who haven’t raised price to keep up with the market will be hurt the most. These small investors don’t have a deep pocket and they don’t want to pay the moving fees.
      Thanks for your input!

      • jim February 21, 2017, 11:06 am

        “I think small landlords who haven’t raised price to keep up with the market will be hurt the most.”

        How? Hows it hurt them specifically? As is if they aren’t raising rents then they aren’t getting full market and a 10% increase is less than they’re raising it now…

        No cause evictions aren’t something you should be doing much if at all.

        • retirebyforty February 21, 2017, 12:34 pm

          For example, the previous owner of the duplex we own. He only raised the rent when he gets a new renter and he deferred a lot of the maintenance.
          One renter was there for 7 years and he was paying $700/month for a relatively nice 1 bedroom. In 2014, the place needed a new roof. If he still own the place and can’t raise the rent more than 10%, then it will be tough to recover the cost of the roofing. I guess he could do that because his entry price is low. He owned the place for a long time.
          I think it’s better to raise the rent a bit every year.

          • jim February 22, 2017, 11:38 am

            OK I see what you’re saying.

            I doubt that there are all that many landlords in that specific situation. Its not a good idea to let your rent get so far under market. But I can see how its easier to happen when rent is going up so fast in Portland. Its also a bad idea to defer major repairs and maintenance costs with no plan to pay for them. But when a landlord does get themselves in that situation then the ordinance may slap them with a $2-4k bill too boot.

            The solution: Don’t get yourself in that situation in the first place.
            Plan B. : If you’re already in that situation then raise rents 9% a year annually and finance the roof repair with the proceeds.

  • Duncan's Dividends February 20, 2017, 8:03 am

    I’m currently a landlord in Chicago and have had some decent tenants, but the profitability isn’t what I was hoping and I’m looking to dump it. I’m gravitating more towards REITs and hoping that there will be some volatility this year with the rate increases.

  • Brian - Rental Mindset February 20, 2017, 8:22 am

    That is rough! It is really a tough situation where not everyone can be happy. The market is humming along so the owner should benefit. Yet what right does the person have who is actually living there?

    I would argue that rent control needs a cap on the number of years to balance things out. In SF (where I live) you get people who have been renting for decades and end up paying less than 10% of market rate. That leads to shady rule bending to get them out, just a messy situation. I don’t think a renter should have the right to do that. I think after 10 years, no-cause evictions should be ok. Or remove all rent increase restrictions. Yes it means the person will have to move out, but when they sign a lease if this is all clearly laid out, doesn’t it seem fair?

    I would be very worried about the above scenario if I were a SF landlord (and Portland landlord in 5 years?). Basically any scenario where you don’t have control is a risk. Same with Home Owners Association dues and condo rules that are subject to change. So yes, I would get ahead of it by pushing 10% rent increases these next few years (especially the one that is way under market).

    I’m a big proponent of out of state direct investing – it’s easier than people think and the returns are incredible even compared to any options that take zero work (REITS, crowdfunding). I feel appreciation is mostly luck / timing, so congrats on the Portland wins, but you could move some to a market that doesn’t have as big of swings. I wrote about it here: https://rentalmindset.com/lets-visualize-real-estate-cycle/

    • retirebyforty February 20, 2017, 9:15 am

      I like your idea of capping the length of rent control. 10 years sounds like a good number to me.
      I’ll have to work on out of state investing. I’m just not good at working with a team…
      Yeap, it looks like I’ll have to increase the rent 10% every year while I can. I hate to do that to my good tenants.
      Thanks for your input.

  • Pennypincher February 20, 2017, 9:20 am

    Man, ‘o Man! If there’s one thing you can count on in these United States is change.

    Can you go to your local/state representatives, band together, and fight for exemption for landlords 4 units or fewer??
    I would also write a sincere (form) letter to your tenants and explain the increase in rent. A very sincere, honest letter.

    My realtor, also a landlord, told me once it’s very difficult to evict.

    Q: Are you sure your $$ isn’t better off in the stock market????

    • retirebyforty February 21, 2017, 9:14 am

      Some landlords are suing to stop the rule, but it didn’t work. I think we’ll have to become more active here.
      I plan to write some letters at the end of this year…
      Yes, eviction is very tough. It’s not good for anybody.

  • Matt February 20, 2017, 9:42 am

    I have a 3 unit and a 4 unit building in Los Angeles where we have 3% rental increase caps. Market rents have been increasing by 6-7% a year for the last 5 years, so I have a few units which are under market. In CA they implemented rent stabilization ordinances in some cities when property tax increases were capped at 2% in the late 70’s.

    I would like to get a couple of those units back to renovate and get the big rents. However, I still make money in that 3% increases with no turnover and minimal maintenance still allows for a nice profit. I will go for my next building in a city with no rent control though as I agree that rent control is not ideal at all for landlords. I also wouldn’t want to be a landlord in a city with tighter rent control like Santa Monica or San Francisco where sometimes the increases are only 1%.

    I would encourage you to stay local with your rental properties. Portland is a great market for the long term. My two properties throw out decent cash flow now after just being more of a trickle when I bought them 5 years ago. Out of state rentals require you being completely reliant on a long distance manager and often these high cash flow properties have lower quality tenants and limited appreciation potential.

    • retirebyforty February 21, 2017, 9:17 am

      The property tax here is capped at 3%, but that doesn’t include bonds, remodeling, and new additions. Our property tax have gone up anywhere from 3 to 10% over the last 5 years. I’ll try to stay in the market for a little longer. Rentals improve with age. It’ll be tempting if I can get the right price, though. I’m sure the market will crash at some point. I can pick up some properties then.
      Thanks you for sharing your experience.

  • snowcanyon February 20, 2017, 9:50 am

    I think that it’s great you are in the market NOW- it’s the folks who buy down the road who will have issues. Oregon is struggling between libertarianism and its bleeding heart in regulating its rental market. I agree these are unlikely to be temporary and that rent increases may be capped in future.

    I think since you own the units already you are in a great situation. I would say increase the rent 10% a year and when the time comes to evict, have that money saved. Pay lots of attention to your tenants- they always destroy something, intentionally or not. I think you are in a great position, but future landlords and tenants may have a harder time.

    • retirebyforty February 21, 2017, 9:18 am

      I agree. It’ll be more difficult for new owners. It’s difficult to balance this issue.
      Good idea about having the money saved. Our tenants are very responsible and I’m very thankful.

  • FullTimeFinance February 20, 2017, 10:03 am

    Real estate is so much of a local thing. I think you’d be better off purchasing a rental further from home. It’ll be a bit more complicated but you’ll also diversify your risk. Right now if your local market gets hosed you lose twice. On your home and your rental.

    • retirebyforty February 21, 2017, 9:19 am

      We had a rental about 40 minutes away a while back. It sucks to keep driving out there. I hated it and won’t do it again. I’d get a property manager if I need to drive out that far.

  • JayP February 20, 2017, 1:31 pm

    Would the relo fee apply if the lease just ended naturally? For example if you have a one year lease and you just choose not to renew with your tenant, surely you wouldn’t have to relocate them. Otherwise you could theoretically never sell your property without paying a relo, assuming the tenant never chooses to leave!

    • retirebyforty February 21, 2017, 9:20 am

      From what I understand, a one year lease change to month to month at the end. I’m not sure, though. I’ll need to do some research. It sounds like the landlord has to give them a new lease.

    • jim February 21, 2017, 11:13 am

      Yes it applies if you don’t renew the lease. Thats a no-cause eviction.

  • Fiscally Free February 20, 2017, 1:32 pm

    I’ve been thinking about getting a rental property and the potential cash flow is pretty discouraging. Learning about these types of laws makes me even more hesitant. I need to do some research and see if there are rules like that in my area.

    • snowcanyon February 26, 2017, 7:16 pm

      Agreed. I have a side-by-side that just cash flows with 25% down. It’s in an upscale area and appreciates decently and also gets fairly responsible tenants (all tenants seem to destroy something, but at least with these it’s not intentional). I suppose it’s been good for diversification, but honestly in retrospect I think I would have saved myself the headaches and just stuck with the market. I’ll sell it if we move out of state.

  • Wilson February 20, 2017, 2:54 pm

    I have a double in New Orleans which I used to live in one side but now rent out both units. Louisiana is a very landlord friendly state with an easy eviction procedure but NO is also seeing greatly increased rents from significant property appreciation plus increased insurance costs. All of which are increasing the prices for a decent rental in a fairly poor city. (Airbnb also got a bunch of blame for the increased rent and was the recent subject of new city ordinances to keep homes in the long-term rental market).

    After attacking Airbnb our city council has gone about addressing the problems by proposing a rental registry, which ostensibly is to designed to ensure that all tenants are provided habitable and safe conditions, but of course will impose all sorts of new fees and time obligations on landlords. B/c the city can’t properly inspect and enforce code violations as it is, a private company will be contracted with (no opportunity for graft or mark-ups there) to conduct the inspections at a time of their choosing, and if you fail to show significant penalties will be imposed. Of course, if they run late, that’s your problem. Naturally they will need to find something wrong, however minor, to justify their job, leading to a re-inspection, more fees and time suck, etc.

    In my opinion it’s a unneeded solution for a few bad large-scale actors that have to ruin it for the small landlord. The fees, costs, and lost time will all be passed on to the tenants, further increasing the overall rent more, so no winners and more burden on small-scale landlords.

    It’s a bit of a different approach to not exactly the same problem, more directed to ensuring that if you’re paying high rent for a unit that at least it meets a certain standard. I’m hoping it doesn’t pass and the city opts for beefed up enforcement of current ordinances to get to the same place, but after hearing about Portland’s new system it doesn’t sounds nearly as onerous and restrictive as could be. So I guess I shouldn’t complain anymore.

    • retirebyforty February 21, 2017, 9:23 am

      Thank you for sharing your experience. It sounds like a debacle over there too. The problem is they’ll keep passing new restrictions as long as the cost of living is too high. It starts with inspection and when it doesn’t work out, they’ll add some new laws. I’m a pessimist when it comes to laws..

  • Al February 20, 2017, 2:56 pm

    Interesting. Our properties are in Santa Barbara California a rent control area and we own over 60% of them which represents about 50% of our net worth.

    As mentioned before, we followed the principle of treating others as you want to be treated and run it as a business.

    The 90 days is the reason that if a renter does not communicate an extraordinary situation with a resolution plan, we post an eviction notice 3 days after the contract grace period in case we have to go that way but we communicate and work with our renters. So far so good.

    There is an eviction service you can use or be familiar with their process as preparation. Also make sure you know a good lawyer that could represent you in case. These service companies can typically provide or recommend.

    Now to the question. Should you get out of the rental business because of the changing laws in favor of tenants?

    My answer is no. Next is, why not? As posted previously, the ROI is better than S&P and other stock investments. The tax consequences are also better. Similar to gold, hard assets are more valuable in times of change. Not that matters but real estate is less volatile than stocks. The change would inherently add more risk to your portfolio. There are many more such as the risk of asset deflation and capital preservation.

    How to deal with the rental regulations? Simple. Be prepared. Clearly identify the process, vet the people, and plan the service.

    Identify the process means to understand and be aware of the laws and your course of action. This also means you need to make this mitigation part of your financial plan. One of many reasons, we had suggested using a fee only financial planner.

    Vet people means in our case to run a budget and credit for tenants to ensure they can afford the rent and live. We also interview people and get a sense of their stability and needs.

    Plan the service means to have an account identified with monies in the event of as part of your financial plan which includes annual, monthly, and rental budgets as well as resource allocations, cash flow analysis, and federal and state effective tax rate if any.

    In our case, we also look at Zillow for quick reference as it has goften better but also rely in comparables from an actual real estate professional.

    In summary, we would not exit the rental property business, use a fee only financial planner to validate, add, and vet your DYI financial plan, and like for most people with a long term horizon, real estate is a large percentage of their portfolio net worth.

    Why gamble with the more volatility and add risk to the financial plan normative rules?

    • retirebyforty February 21, 2017, 9:26 am

      Thank you for your advice. We’ve been very lucky so far and have great tenants. I’ll have to vet people a lot more carefully next time and get an air-tight lease. BTW, I went to college at UCSB and would love to move back to Santa Barbara someday. Even temporarily would be great.

      • Al February 21, 2017, 8:19 pm

        LOL! Better lucky than good. Read the posting about air tight lease. It’s a good way to incorporate lessons learned but sounded a little anxious or extreme. Be prepared but also be yourself. It’s important too.

        UCSB is a very good school. One of my options is to teach there but not certain about that yet.

        We been pleasantly surprised and fortunate with the housing market here. Both the University and City of Goleta have been building like is no tomorrow. University is expanding, if you walk Isla Vista you won’t recognized it. The city has approved a lot of building and new developments. Previous city council voted out based on the out of control development.

        Let me know if you come down.

  • Sam @ Financial Samurai February 20, 2017, 2:56 pm

    SF is a rent control city, but only multi-unit buildings are subject to rent control. If you own a condo or a SFH, you can raise by 10% w/ a 30 day notice and up to I believe 60% with a 60 day notice!

    I’m NOT buying any property to be a landlord. Property taxes are too much now (~$50,000/year). Gotta keep things simple!

    • retirebyforty February 21, 2017, 9:27 am

      Oh wow, I didn’t know condo and SFH are exempted. That’s great for small landlords.

  • Mr. All Things Money February 20, 2017, 4:07 pm

    Regarding buying properties outside your local area, have you looked into one of these new companies that do all the leg work for investors who want to buy properties outside their area?

    HomeUnion is one of such companies. There was a recent article and a video I saw on CNBC that you may want to check it out: http://www.cnbc.com/2017/01/13/becoming-a-landlord-is-just-a-click-away.html

    As for me, I am staying away from becoming a landlord or a renter as it seems it sucks either way; especially in our Portland area.

    • retirebyforty February 21, 2017, 9:28 am

      I have never heard of them. I’ll check them out. Thanks!
      Yeah, it’s getting crazy here. There are so many issues now that we are getting bigger. I guess we should be thankful that we already own properties. At this rate, we probably can’t afford a house in 20 years.

  • Dave in Sunny FL February 21, 2017, 9:08 am

    “WTF” is right! I would add those relocation costs straight onto the leases for the future tenants. The problem with taxes, cost add-ons, and minimum wage increases, is that the expense always falls to the one who cannot turn around and pass it on to someone else. Also, I don’t like REIT and crowdfunding as real estate alternatives. Although you may have “exposure” to real property, you don’t have the benefits, like depreciation (phantom cash flow) and the ability to improve your investment (nicer appliances and new paint, offset with a rent increase, for example). Plus, I don’t think there’s any bank that would let you use leverage (OPM) to buy REIT shares or crowdfund!

    • retirebyforty February 21, 2017, 9:33 am

      Ugh, adding relocation cost into the lease wouldn’t work. Tenants wouldn’t be able to come up with first month, last month, security, and relocation cost. That’ll be $7-8,000, way too high. I’d definitely raise the rent quite a bit when a unit turnover, though. Not a good situation for anyone.

  • Dan February 22, 2017, 9:26 am

    Joe, if it were me, I would simply put in a big rent increase before the law takes effect, as in, drop what you are doing and give your tenants notice. Let them know you have NO CHOICE but to increase the rent to the market rate. Sure, you risk that they might move out, but at least if they do, you won’t have to pay a relocation fee for increasing rent more than 10%.

    Am I missing something? Can you still do this? I suspect many Portland landlords are going to do this ahead of the law.

    • retirebyforty February 22, 2017, 9:30 am

      The law was effective immediately (Feb. 2nd) and it’s retroactive to the people who hasn’t moved yet. So even those that already received an eviction notice will be able to collect the relocation fee. Great for tenants, but not so great for landlords.

  • Andrew February 22, 2017, 9:50 am

    That’s why I bought a rental in Kansas City, MO…it’s a little more landlord friendly there. However, I don’t think the rules you stated are that restrictive. I think if you keep up with raising rents appropriately at the end of the lease then you’ll be fine. And 10% is pretty reasonable. Also with no cause evictions, if you have a lease, I would say it is unfair to evict a tenant. None of the reasons you listed seemed like a good reason to break a lease and evict except maybe number 1, but if the tenant was that bad, they may have breached the lease in which case you might be able to evict.

  • K. McGarrett February 22, 2017, 3:28 pm

    In B.C. rent increases require the 3 months notice and are also restricted this year to 2.9%. Of course, there’s no guarantee that property taxes, condo fees, etc won’t go up more than that amount.

    If the average condo in Vancouver is $500,000 your mortgage payment, even with $100,000 down payment would be around $2000 a month +-. Then there are condo fees and property taxes, levies, insurance and maintenance. Hard to make a profit.

  • Anirudh February 27, 2017, 11:38 am

    You should see the rental laws here in Berkeley, ca!
    It’s very skewed toward tenants. You need just cause to evict a tenants.. even if you want to occupy your single family house.. you will have to provide proof and you can’t re rent the property for 3 years .. and you have to register at the rent board and can’t increase more than allowable limits.

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