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Landlord/Tenant Laws Impacting Investors
On the rental side of the real estate market, demand remains fierce, and owners are feeling the impact of the new landlord/tenant laws.
“Demand for rental properties remains high. We had a larger supply of available inventory at the beginning of quarantine last March,” says Gretchen L. Stauffer, operations manager and property manager of PLUS Property Management in Bend. “About a month in, our rental application volume began to increase. We saw a shift in the marketplace over a few months, as tenants began to take on roommates, and gave notice to move in with family or friends. Tenants left the area to find other work, and rental applications from out of the area increased significantly,” says Stauffer, who is a licensed principal real estate broker in Oregon. “Over 50 percent of tenants placed from March 2020 forward were relocating from other areas. That trend has not slowed, and inventory levels are incredibly low due to demand and current tenants electing to hold tight through the pandemic.” She says PLUS’s vacancy rate is about one percent, and they generally have new tenants under Deposit to Hold contracts before existing tenants even vacate.
As with real estate values, rental rates have accelerated rapidly, Stauffer says, and as long as inventory stays low and demand remains high, the market will be the driver. She says that multi-family and higher-density apartments in various stages of completion will add supply to the marketplace and could affect rent rates, but, generally, investing in property in Central Oregon is still popular and beneficial. “Long-term equity growth over time has been consistent. Central Oregon remains a popular place to be, so I don’t expect to see that change. There are tax benefits for some, and for many, investment property provides a source of income. It also serves as a tangible asset that an owner can occupy or liquidate at some point, should they choose. Markets trend upward and go down, but, overall, there is generally positive equity growth over time, so it makes for solid long-term investment.”
Throughout the pandemic, Stauffer says the market has shifted. Both real estate prices and rental rates have increased exponentially, particularly in the past 12 months, and she says that in the first few months of mandated quarantine, there was a surge in investor activity as investors divested themselves of rental properties in higher-density locales that were being hit hard by COVID. “Seattle, Portland and Southern California dollars funded 1031 exchanges, primarily in the Bend marketplace initially. As already-scarce inventory dwindled and prices continued to rise, investment purchasers spilled into Redmond and other outlying markets in order to find pricing that would meet desired calculated capitalization rates.” She adds, “Investor inquiries regarding rent rates have dwindled significantly as property prices continue to rise beyond levels that make sense to them. As a property management company, the advice we provided owners, regardless of origin, was to calculate their cap rates based on historical rent-rate trends rather than on current inflated rents, knowing that they could certainly garner more now, but to provide a more conservative valuation cushion for longer-term projections. In other words, plan for market adjustment but enjoy the financial benefits afforded by elevated rents today.”
The biggest challenge for investors in the current market is the landlord/tenant laws that have come about since March of last year, Stauffer says. “Whether permanent or temporary, they have been onerous. If an owner has a non-paying tenant, the current Eviction Moratorium prohibits an owner from evicting for nonpayment of rent. Owners may only evict for a qualifying reason, such as the owner or owner’s immediate family member moving in or for the sale of a property to an owner-occupant purchaser.” Statewide caps on rent rates for properties over 15 years old limit the amount of increase an owner can initiate in tenant-occupied properties, she says. “Under temporary law, an owner cannot terminate a lease and require a tenant to move at lease expiration.”
Because of the events of the past 12 months, Stauffer says utilizing the services of a property manager can be invaluable to owner investors. “It is our job to stay abreast of the evolving legal environment and take the appropriate steps to protect our investors as well as our tenants. It starts at the beginning with stringent tenant screening criteria, credit and background checks, rental history investigation and financial review. Many owners either do not have access to or simply do not perform the level of screening that we do.” As an example, Stauffer says that early last year, PLUS Property Management took on a new property with an existing tenant who had been troublesome to the owners. Months later, the tenant vacated, leaving a debt in excess of $21,000. “Had the tenant been properly screened, that situation likely would have been avoided. We also have familiarity with navigation of the court system pertaining to tenant violations and collections.”
When a tenant is struggling to pay rent, Stauffer says PLUS Property Management steps in to help when possible. “PLUS Property Management was proactive right out of the gate with the onset of COVID and mandated quarantine. We took the perspective that we are all in this together, knowing that so many in the service sector would be financially impacted by quarantine restrictions.” She adds, “We immediately reached out to our community partners who have programs for income-impacted Central Oregon residents and solidified communication paths to provide for greater processing efficiency and information sharing. We reached out directly, and still do, to every impacted tenant to supply links, contacts and information for not only rental-assistance programs, but for food and utility assistance.”
Stauffer says property managers have access to information that the general public is not able to access, including available properties, that is highly beneficial in this competitive market. “We, as property managers, perform move-in and move-out inspections, taking upwards of 200 photos with each inspection. This is a benefit to both owners and tenants when there becomes a question about damages and the financially responsible party.” She continues, “With a maintenance director and maintenance technician on staff, we can rapidly address most maintenance issues. For problems requiring a licensed trade professional, we have a team on call that responds to emergencies with expediency and can schedule non-emergencies in a timely manner. That level of expedient access to trades in Central Oregon is very difficult for the general public to gain due to high demand for contractors in the area,” she says, adding that PLUS is on call 24/7 for emergencies.
“This past year has certainly been a bumpy one for the residential rental market. And it’s not over. Legislators continue to debate and implement temporary and permanent changes to landlord tenant law that directly impact investor owners,” she says. “If ever property managers were needed, now is the time.”