Friday, October 23, 2015

Portland's upcoming rental rules and real estate transactions

I think most of you know by now, that the City of Portland declared a housing state of emergency, allowing for temporary rules with regard to no cause evictions and rent increases.  Portland has been focusing, for awhile, on homeless issues.  Instituting rules with regard to landlord/tenant issues is a new direction.

Portland's rental market is so tight, that renters, given only thirty days notice to vacate, are challenged to find a new rental.  And some landlords have been using aggressive rent increases as a way to "encourage" tenants to move.

In short, the City Council's new rules require landlords to give tenants 90 days notice when raising their rents 5% or more, and in the case of "no cause" evictions.  Landlords will still have the ability to evict tenants for "cause, if the terms of the lease or rental agreement have been violated, and may raise rents once annually with a less than 5% increase.  These rules take effect November 14th, 2015.  I believe they will be in place for one year, unless extended by the City Council.
In general, I'm quite supportive of these rules.  There are few instances in which a landlord NEEDS to raise rents more than 5% on short notice, or to move a tenant, in good standing, out.  But...these rules may put us in some sticky spots with regard to real estate transactions.  First though, I'll agree, this won't be the first time rules to curb egregious actions will end up compromising those behaving more reasonably. 
The particular sticky spot will be when a tenant occupied property is being purchased by buyers who will be owner occupying.  Keep in mind, often the buyers of tenant occupied property are first time or low income buyers.  Properties financed with owner occupied loans must be owner occupied within 60 days of closing, and our normal closing/escrow time is 30 - 45 days.   We'll most likely be asking a landlord/owner to give tenants the 90 day notice when an offer is accepted, and before a buyer is through inspection or finance contingencies.  This instance will only work if the buyer is willing to have a tenant in their new home for up to 60 days, and is confident and comfortable that the tenant will vacate on time, and leaving the property in reasonable condition.  I'm not sure that scenario is really the best for first time buyers who might be inexperienced with landlord/tenant dynamics.
 As a broker representing first time buyers, I'm most comfortable showing them properties that are vacant, or owner occupied.   Real estate transactions have enough foibles and pitfalls, I'm hesitant to build in any further hurdles.  Admittedly, even before the 90 day rule, I have advised my landlords who are selling, it may be best to move tenants out.  With the 90 day rule, I'll probably put a bit more emphasis on the benefits of moving tenants out prior to marketing a property.  

Tenant occupied rentals being sold to owner occupants are but a small slice of tenant occupied properties in Portland.  With careful and informed navigation, the real estate community should be able to avoid the above referenced pitfalls, while closing transactions.  An extremely volatile rental or real estate market does not benefit the overall stability or livability of our city.

If you have questions about these rules, from the tenant, landlord or real estate point of view, please do get in touch.  503-312-8038.

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