Real Estate Investing in Oregon
Hi and welcome to Around the Neighborhood with me, Scott McMahon. This is the show about the quest for fun, history, and mystery in our backyard.
Normally, I record my episodes outside, but it’s really cold and rainy today and it just felt better to be next to a fire, don’t you think? Anyway, my episodes focus on the fun and history of things in and around Oregon, but since the show is sponsored by my real estate services, I wanted to make an episode for a number of my clients who are wanting to buy investment properties here in Oregon.
So, I’ll do my best to make it fun and interesting. Haha.
When it comes to investing in real estate let’s start with what your goals might be?
- Are you wanting to own a second home in a location like the Oregon coast, or maybe down in Bend, or up near Mt. Hood or Mt. Bachelor? Then rent out that home when you’re not using it?
- Are you wanting to own a property for a number of years to sell it when it appreciates in value?
- Are you wanting to buy a home that needs renovation and fixing up, and then flipping it for a quick profit?
- Or do you want to buy a home, then renovate it, then rent it, then refinance it, and then find more properties to do the same?
- Are you wanting to own a property in which you don’t plan to sell, but that brings in a profit every month from the rent?
- Or do you want to jump into the world of short term vacation rentals, using services like Airbnb that have more properties, or Vrbo which might be more customizable, or use a Portland-based company like Vacasa?
- No matter what type of property you end up investing in, there will come a time when equity builds over time, so, do you pull money out from that property to use as a down payment on another property? And then do that over and over again in order to build your real estate portfolio?
- Lastly, one of the more conservative strategies is to simply buy an investment property to build generational wealth. This means that you may not see immediate cash flow profits from the rent, or see any immediate increase in equity, but over a long period of time you’ll see a monthly profit when you can raise the rents, and leverage against the value of the home when the equity increases. By holding onto the property you can transfer it to your heirs in order for them to benefit from the investment.
Okay, I bet you’re thinking, that’s a lot of options. But regardless of your goals, the basic idea is to get a return on your investment, whether it be in the short term or long term.
Let’s start with where you might get the money to buy a second property.
I can make introductions to a number of loan specialists who will be able to assess your financial situation and help determine for you which loan programs you might qualify for if you'd like to purchase an investment property.
Not every loan specialist is the same and not every loan program is the same, so you have the benefit and the ability to shop around to see what works best for you.
There are different thoughts on whether or not it’s good to carry debt. Many savvy investors claim that carrying consumer debt like credit card debt is considered bad debt. But carrying and having a mortgage type debt is considered good debt.
If you’re able to use a small amount of money to acquire a loan to purchase an investment property, and then have your renters pay for your mortgage, insurance, and reserve funds … and still have a profit left over each month, then having debt in the form of a mortgage could be a good thing.
I have an investor friend who told me that cash in hand is always worth more. So, instead of using all your cash in hand to buy an investment property, just use the minimum to get a loan and profit from that, leaving a surplus of cash in hand for other things.
When lenders are approving investment loans, they often look to see how much you have in savings. If for instance, you were to put 20% down on a $100,000 investment property that would be $20,000 cash that you would have to use.
If the property increases in value by 5%, then you would get a 25% return on your $20,000 investment. 5% of $100,000 is $5,000. $5,000 is 25% of your initial $20,000 investment.
However, if you only put down 5% or $5,000 for the $100,000 investment property, and that same property increased in value by 5%, you would get a 100% return on your $5,000 investment. Instead of using all of the $20,000, you would use $5,000 to get the loan, and have $15,000 left over for repairs, reserve funds, etc. and the lender would see that you have $15,000 in savings which means more to them than using all the $20,000 for the down payment.
To work with this 5% down payment scenario, many times you have to work your investment strategy into your primary residence. Loans that will be used on a primary residence require lower down payments than if it’s a straight investment loan.
Again, there are a number of scenarios to work with, I just wanted to show you some ways, if you can make it work, that for very little down you can still become an investor.
Once you know what type of investment you want, and what kind of financing you have to work with, then it’s time to start shopping for properties.
That’s where someone like me, a licensed real estate broker in the state of Oregon can help.
Many times a client will ask me what do you think about this property? I do my due diligence and assess the backstory of the property. Why is the owner selling? Where is the property? Are there any red flags to look out for?
We might go and tour the property and see first hand if there’s something troubling about the condition or location … or it could be all good.
We’ll run the numbers. On paper does it look like a good deal to pursue or not? Is there enough of a profit margin that makes the time and effort worth it?
There is a school of thought that it can take searching and analyzing 100 properties before you find the one good deal.
Or you can just find a property you like and if the rent can cover your mortgage and expenses, and you might not see a return right away, but over a long period of time you will … then you can move quicker. This way you’re not over thinking the process and falling victim to analysis paralysis.
Let’s say you finally found a place, and you’ve run the numbers, and assessed the risks, and you’re ready for renters. What kind of landlord will you want to become? A landlord who just gets the property liveable without frills, or do you invest in a little better quality appliances, finishes to the home, or anything that would be attractive to long term tenants? Or do you want to risk having higher vacancy rates when you constantly have tenants moving in and out?
Speaking of tenants, what are the laws that govern the relationship between landlords and tenants in Oregon?
Oregon has some of the more favorable laws in place for tenants than other states, but there are plenty of investors in the state who have successfully worked with and adapted to the laws in place. So you can do it too.
It’s best to consult with a professional legal adviser, but you’re more than welcome to read over all the current laws in place at Oregon Laws (dot) org, as well as, over at Oregon State Bar’s website. I’ll leave links in the description of this video.
If you have a trustworthy relationship with your tenants you can reduce the risk of horror stories where a tenant ruins your property. Bottom line, it comes down to risk assessment in any investment and the same is true with rental properties.
First off, get everything in writing. This is where you might want to work with a real estate attorney to draft the documents, or work with a property management company.
Here are some highlights to keep in mind about the current Landlord Tenant Laws in Oregon:
Under Oregon law, landlords must disclose specific information to tenants (usually in the lease or rental agreement). The list of required disclosures is long and includes information on topics such as:
- who is the owner and manager of the property, and who is authorized to receive notices such as service of process (Or. Rev. Stat. Ann. § 90.305)
- pending legal actions (Or. Rev. Stat. Ann. § 90.310)
- responsibility for paying utility bills (Or. Rev. Stat. Ann. § 90.315)
- recycling (Or. Rev. Stat. Ann. § 90.318)
- smoking policies (Or. Rev. Stat. Ann. § 90.220)
- carbon monoxide alarms (Or. Rev. Stat. Ann. §§ 90.316, 90.317)
- smoke alarms and detectors (Or. Rev. Stat. Ann. § 479.270)
- flood zones (Or. Rev. Stat. Ann. § 90.228)
- renters’ insurance (Or. Rev. Stat. Ann. § 90.367), and
- payments for homeowner assessments (Or. Rev. Stat. Ann. § 90.302)
Landlords typically collect a security deposit and the tenant has the right to sue landlords in small claims courts to retrieve that deposit if it’s determined that the landlord is holding onto the money illegally.
Oregon landlords may not charge nonrefundable fees (Or. Rev. Stat. Ann. § 90.302). Oregon landlords may only charge fees for specified events as they arise. For example, landlords may charge fees for acts such as:
- paying rent late
- paying utility bills late
- bouncing checks
- failure to clean up garbage and trash, including pet waste
- violating parking and vehicle rules
- violating smoking rules
- damaging property, and
- tampering with smoke detectors
Oregon has a statewide rent control law that limits the amount of rent increases, bars landlords from raising rent more than once in any 12-month period, and requires landlords to give tenants proper notice before raising rent.
During any 12-month period, landlords cannot raise the rent more than 7% plus the consumer price index above the existing rent—no matter how long the tenancy. Every September 30, the Oregon Office of Economic Analysis will publish the maximum annual rent increase percentage for the following year.
So that means, for right now it’s 7%, but it could change year to year.
The CPI, the consumer price index, can be between 1%-3%, so effectively you can raise rents to about 10% every year.
For week-to-week tenancies, landlords can raise the rent after giving seven days’ written notice. For all other tenancies, landlords cannot raise rent within the first year of a tenancy. After the first year of a tenancy, landlords must give 90 days’ written notice before raising the rent.
Landlords who illegally increase rent must pay tenants an amount equal to three months’ rent, plus any damages the tenants suffered from the increase (such as interest on money they borrowed to cover rent). (Or. Rev. Stat. Ann. § 90.323.)
One thing to keep in mind is that Multnomah County and the city of Portland have stricter laws in place if a landlord evicts a tenant without due cause or tries to raise the rents without proper notice.
At the time of this recording, we’re still in the middle of the pandemic from the coronavirus, and for a time some tenants didn’t have to pay their rent and avoid eviction. However, that moratorium period is coming to an end, so we’ll see what happens.
The bottom line is that a good working relationship with your property manager and tenant can help to avoid any horror stories.
One of the benefits of buying an investment property in Oregon and especially in and around the Portland area is that of all the West Coast cities between California and Washington, Portland is still the more affordable option that can give investors a profit.
I’ve curated a number of valuable videos and added them to the description of this video. They should help you get a better understanding of what you’ll need to do in order to be a successful real estate investor.
If you’re ready to get started, let me know and we’ll tackle each of these areas one by one.
Thanks for watching. I hope to talk soon. Until then, I’ll see you around the neighborhood.
▼ OTHER VIDEOS OF INTEREST:
Oregon Laws.org: https://www.oregonlaws.org/ors/chapter/90
Oregon State Bar: https://www.osbar.org/public/legalinfo/landlordtenant.html
How To Buy Your First Rental (8 Beginner Steps): https://youtu.be/nb9gtT-BqRc
Real Estate Revealed How to AVOID Paying Taxes...(Legally, of course): https://youtu.be/VS00yYyx9Ho
Pros & Cons of Airbnb Rentals: https://youtu.be/JftWQbAAJkI
The BIGGEST PROBLEM with renting your home on Airbnb: https://youtu.be/fvK6ihMzJbE
▼ GEAR I USED TO MAKE THIS VIDEO:
GoPro Hero 7: https://amzn.to/36Hw4zR
GoPro Vlogging Case: https://amzn.to/2FzfxBY
GoPro Mic Adapter: https://amzn.to/35HE8zg
GoPro Shorty Tripod Extender: https://amzn.to/307SHem
▼ REAL ESTATE CONTACT INFORMATION:
Scott McMahon Real Estate Broker Licensed in the State of Oregon Premiere Property Group, LLC https://scottMrealestate.com
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