Rent Reform and Investors: What You Need to Know

If you’ve been following housing market news, you know that rent reform is a hot topic in our nation right now, with Oregon leading the way in passing new rent regulations back in March of this year. California and New York have followed suit, leaving other states (like Illinois, which has banned rent control since the late 1990s) to decide if they too will adopt rent regulation policies.

Rent regulations (also known as rent stabilization and rent control) limit landlords’ ability to raise rents, usually by an annually decided-upon percentage plus inflation. Some rent regulations include new requirements for a landlord to be able to evict tenants, as well as new building maintenance standards. In general, rent control is intended to protect renters from the volatility of the market.  

Why is there a push for rent reform? According to Harvard University, about half of Americans spend more than the standard 30% of their income on housing. As housing prices increase, especially in metropolitan areas like Los Angeles and New York, individuals and families are more at risk of losing their homes due to rent spikes and fewer affordable housing options, especially for low-income families. 

It’s no secret that the implications of rent reform on investors are that they typically don’t want to invest in rent-controlled properties because of all the variances in regulations (between states and cities). Plus, for investors with properties in multiple locations, staying up to date with the latest policy changes can be time-consuming. 

Below, HomeUnion® – a Mynd Investment Platform discusses three important aspects of the new rent reform regulations you should keep in mind as a real estate investor.

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1. Rent control laws aren’t the same across the board.

Even though states like Oregon, California, and New York have passed statewide rent control legislation, investors under new rent reform need to know the variances in the rules from state to state and city to city. Some such factors include the age of the building, its location, whether it’s a single-family home or multi-family property, etc. 

For example, Oregon is the first state to adopt a statewide rent control cap, including new no-cause eviction standards. Oregon requires a 60-day eviction notice from the landlord for renters who have a month-to-month lease, having lived in the unit for over a year (30-day notice for renters who have lived there under a year). However, in the city of Portland, landlords must always give 90 days’ notice.

2. Be aware of the exemptions.

Similar to #1, investors under new rent control rules should know what exemptions the state and local municipalities allow in the new regulations. 

In general, the impact of rent stabilization on investors as it relates to eviction regulations state that landlords can evict a tenant if they: 1) do not pay rent, 2) breach some part of the lease agreement, or 3) for other legitimate reasons, such as tenant being involved with criminal activity on the property. In California and Oregon, landlords can evict tenants at any time if a family member is moving into the unit or they need to remodel to make the unit fit for safe occupancy. 

The impact of rent reform on small landlords is different than the impact of rent reform on institutional investors. Some other exemptions to keep in mind according to location are: 

  • California: Single-family homes and condos are exempt from rent control (this is a big win for small landlords under new rent reform).
  • Oregon: Landlords who split a duplex with a tenant are exempt from having to pay the relocation costs of a month’s rent to evicted tenants. 
  • New York: Rent control excludes condos and co-ops. Also, if one unit in a building is rent stabilized, it doesn’t necessarily mean that all units will be.

3. Preparation and documentation are key.

Understanding the new rent regulations in your state is of the utmost importance, but so is being prepared with your own budget, resources, and documentation. Ask yourself: How much rent do you need to charge for your property to make it financially beneficial to you? 

Some real estate institutional investors may purchase in states that do not have rent control policies in place, while others choose to maintain their properties and expand in the cities they are already investing in. If you’re in the latter group, pay specific attention to eviction regulations, which make it more difficult for landlords to evict tenants. Document everything so if you ever have to go through the process of eviction, you’ll be prepared.

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Rent reform will have a major impact on both small landlords and institutional investors. In the upcoming months, we suggest you spend time learning the new regulations in your state or preparing for rent legislation to hit the desks of your local and state government officials. After all, knowing is half the battle.  

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