Kurt Lane is the owner of Chroma Property Management in Portland. Prior to starting Chroma in late 2019 he was a rental property owner in Portland and Detroit, Michigan for the better part of a decade. Chroma offers full-service property management for single-family and multi-unit properties as well as a suite of services for ADU owners including tenant screening, application processing, and lease preparation. His area of expertise includes state and local regulations impacting the ADU community.
Kol : This is [00:02:00] kind of a interesting topic that is, on its surface kind of a dry topic, but one that I think is really important for some big picture policy reasons. Just to set a little bit of a framework for why this topic is relevant.
There's a direct correlation with where ADUs are likely to take off and an affordable housing crisis. So in areas where there's an affordable housing crisis, we're likely to see ADUs. In areas where there's an affordable housing crisis, we're also likely to have stricter than normal rental regulations and therefore owner occupied properties, where people are prone to build ADUs, all of a sudden they may, may maybe in statistically speaking, more likely to be subject to onerous rental regulation standards.
So I wanted to have Kurt Lane on today to kind of go over some of these issues and how some of these rental regulations apply in Portland. So in any [00:03:00] event Kurt, why don't I have you just give a brief introduction of yourself?
Kurt: Yeah, sure. So my name's Kurt Lane, I've been a rental property owner here in Portland and in Detroit, Michigan for the better part of a decade.
I started Chroma property management at, towards the end of last year after, spending a lot of time, self managing properties that I own and really just, I saw a need in the Portland market for really a more modern approach to property management. And also I saw a need or, property management services for ADU and owner-occupied people because obviously that makes up a significant portion of our market here.
, Portland, I think is arguably the most heavily regulated rental market in the country. So property management then becomes, pretty crucial here in order to help people navigate all of that regulation because, penalties for being in non-compliance can run into , easily into the thousands.
So, it's a full service property management company, but we do have a suite of services specific to ADU owners.
Kol : [00:04:00] So let's talk in broad strokes about the trends in terms of landlord tenant laws in West coast cities that are facing an affordable housing crisis. Can you talk about some of the big picture trends that we're seeing in those regards?
Kurt: Yeah, so I think, really this started in Portland and really in other major cities over the last decade there was a really significant increase in the total dollar amount of money spent on rents and also on, the percentage of rent increases. So in Portland, in particular, 2010 to 2015 they saw , over 20% increase in rents and significantly, there was a spike in 2015. Overall Portland saw a lot of economic gains in, in the last 10 years. So it was a fast, fourth, fastest growing city , looking at income specifically, and it was only behind Seattle, San Francisco, and I think San Jose . So Portland saw a lot of economic gains, but also saw , people feeling really [00:05:00] squeezed out of the rental market, especially with redevelopment and sort of, inner Northeast and inner Southeast, which is, sort of close in to our city here.
That gave rise to the city, declaring a housing emergency in the fall of 2015 and the housing emergency . I'll just read the language really quick because this language really then dictates the policies we're going to be talking about today. So the Portland city policy as of 2015, is that all Portlanders regardless of income level, family composition, race, ethnicity, or physical ability have reasonable certainty in their housing, whether publicly assisted or on the private market.
And so this concept of reasonable certainty becomes very important. In defining how the city is going to implement a bunch of regulations. So primarily that's taken the form of rent control. So we have citywide rent control here in Portland. The state decided to then follow suit with the first statewide rent control legislation in the country.
So that passed [00:06:00] last year. So at the state level, rents are capped at 7% plus the consumer price index annually. So this year it was 9.9%. Those rates are set every September. Portland also just incidentally has 9.9% increase year to year. So that was very fundamental shifts. Another big change was that there's this idea now of when a relocation assistance.
So all of the things we're going to be talking about today, are expansions of tenant protections in the market to try and guarantee some reasonable certainty. So rental relocation assistance, what that really means is now there's direct form of cash payments from landlords to tenants in the event of, excuse me, in the event of a no cause eviction or a rent increase over 9.9%.
And then most recently as of March 1st, there's now these ordinances that are called the fair ordinances. One of those deals with screening criteria. So how you can evaluate tenants and the second deals with security deposits. So [00:07:00] what you can charge for security deposit upfront, and then also how the landlord and the tenant have to document the condition of the property throughout tenancy.
And so what you're seeing these that's Portland specifically, but you've seen that replicated in Seattle. Obviously you're seeing that in California and LA and San Francisco and other communities there Seattle, this winter, the city council passed a resolution that you could not evict tenants during winter months.
The mayor refused to sign that, but that's going to come back around. And I think obviously with everything going on now with COVID-19 and major economic disruptions, you're going to see cities, make attempts essentially to guarantee housing for people. And so that's taking the form now in Oregon of there's a moratorium on evictions through the entire emergency and the state and city sort of, big dictate when emergency period ends.
Kol : It use are largely developed by amateur homeowner developers. And many of these homeowners are becoming landlords for the first time when they finish your ADU and [00:08:00] rent out the primary house or the ADU. So what are some best practices that you would like to convey to first time landlords?
Kurt: I think, really important to start thinking about the property, number one is an investment property. And, but number two also, as , you are providing , housing to people and there's a, there's a great deal of responsibility that comes with that. And so that means that, you need to have a legally binding lease. You need to have an application process that's equitable.
You need to make sure that your screening criteria is documented. You need to make sure that how you go through the entire application processes is really well-documented. That basically you're you really in compliance with all these things. I mean, that's sort of legally, that's what you want to make sure of.
I would also really advocate people , making sure you have the right insurance in place, so it's going to be a different type of insurance than you have for your home, for example . I'm a big advocate of people setting up LLCs for rental properties. I think there's a lot of protections that provides.
[00:09:00] For a lot of people, it's the first time doing this. And with ADUs, it is unique because, typically the owner is, intimately involved in the development of the construction of it, as well as opposed to somebody who goes and buys a duplex or a fourplex to get started.
So I think you have to separate yourself from the process a little bit and start thinking about what are the steps I would, I would be taking if I had, a standalone duplex or a standalone single family rental, and just really making sure you have everything in order to, to be going about it legally and to really, be taking on having tenants full-time.
Kol : Do does having renters living on the same property, of owner occupied properties, meaning an owner occupied property with an ADU or duplex or triplex provide any separate legal protections for landlords or for tenants that are not afforded to non-owner occupied investment properties and can you describe what these protections are?
Kurt: Yeah, definitely. So in, in [00:10:00] Oregon, and I think you're seeing this , in other places where ADUs becoming, an owner occupied, is becoming more and more prominent part of the mix of rental housing is, there's this trend towards creating a separate class of rental property.
So a lot of times, obviously ADUs and owner occupied, they're, they're treated the same as, an apartment complex with a hundred units or 500 units. But in other key areas, the city and state are differentiating those types of properties. So the key things to think about when you're talking about ADU and owner occupied is the idea of the owner actually living on the property.
So that means the owners that they're living in the house, which would be considered the primary dwelling or living in the ADU. It doesn't really matter, which just as long as you're living on both, if you're living on neither, then your property is just a rental property in the same way , again, a hundred unit apartment complex would be. It's treated the same legally. But if you are living onsite, which is obviously really common in the ADU world and [00:11:00] an owner occupied, in Portland and in Oregon, you are granted certain exemptions. So rental relocation assistance, which I talked about earlier that the direct cash payments and the, a bit of a no cause eviction or rental increase button 9.9%, that doesn't apply to ADU owners who live on site. They also are exempted from the screening criteria of the FAIR ordinance that passed. And what the screening criteria really was, was an attempt to standardize how tenants are screened and then also lower the bar economically to make, a wider pool of housing available to people.
So it used to be that. Tenants would have to show three times , gross income relative to the rent. And now that's been dropped to two times. Credit scores have been dropped. So I think it's 500 now criminal history, they backed off on what you can look at in terms of criminal history.
So before it used to be well now, for example, it's , seven years is as far back as you can look. So that doesn't apply to [00:12:00] ADU owners.
Kol : Wait, none of those, none of those screening laws apply to ADU owners?
Kurt: No. So in none of the FAIR ordinance screening criteria, none of that applies to ADU or owner occupied.
So the other thing that's really important for ADU owners, especially if you're dealing with new development is, so there's the statewide rent control law that I discussed earlier that caps rent at 7% plus consumer price index annually. That doesn't apply if the certificate of occupancy was granted anytime within the last 15 years.
So those properties are grandfathered in and exempt from state rent control. So, basically the key things to really know, in Oregon, in terms of the mix of how this works with ADU , you can have an exemption for state and rent control law if your ADU is less than 15 years old, rental relocation assistance, since doesn't apply to you. And also this, the screening criteria, the FAIR ordinance, doesn't apply. The second ordinance there, which is security deposit, [00:13:00] and that applies to everyone. And that's really that that's a fairly like it's a significant ordinance. So people should be really aware of that going into the process. But yeah, those are, those are some of the things that have been done to really differentiate ADUs.
The important thing to know about all of this is that, especially with the rental relocation assistance, you have to file an exemption with the City of Portland. And that has to be granted by the housing bureau. So there is a process for that exemption, but it does exist.
Kol : Yeah. Well, I'd like to talk more about those things in a minute. I will mention that roughly 10% per year rental price increase seems pretty high to me. Like if I'm charging say, a thousand dollars a month, right now it's just really inexpensive, the least expensive ADU probably would go for a that I can bump it up by 10%, how 1100 bucks. And it like to, that's a pretty big bump. So that doesn't seem [00:14:00] like it's a problem from our landlord's perspective to me. Does it seem like one to you?
Kurt: Well, I think what was happening is that, we touched on it a little bit earlier, but over the decade, last decade , 2010 to 2019 there was rents in Portland, went up a lot. So it also, and there was also a lot of redevelopment of existing rental stock. So what was happening is, a person buys a fourplex and, does an extensive renovation and then suddenly their market rent went from, and this is a, pretty accurate example probably about like went from 650 to 850 for a one bedroom.
And suddenly their market rate was 1200, right. So that represents a significant increase in rent. But it was in line with the market. So I think you don't have a problem with this if your rents are already at market rates. But if you have situations, which is also really common, where especially if somebody owned, owned a property for 15 years and they've had the same tenant and maybe they've raised [00:15:00] rents, 5%, every five years or something like that, which isn't unusual, suddenly you're way behind in terms of what the market rent actually is.
And so if you're in that position, then 10% , doesn't seem like that great of an increase, but I agree. I mean, if you're, all the, all the landlords, all the owners that I work with everybody is, and the rents are at market rates already. So they're not really going to be worried about, 9.9, 10%.
What happens though, and what people are worried about is that landlords were automatically increase rents to that level every year, just to make sure that they don't fall behind. Because if you miss a year, then , you can't make it back up. And also the other thing to important, important to realize about that is you can't raise rents above the allowable level between tenants.
So there's, there's this idea that the rent level sort of , it is dependent on the property. So if somebody moves out and they've lived there for 10 years and let's say, do use the ADU example, let's say they were paying $800, right. And , now you can get 1200, you [00:16:00] can't automatically raise it to 1200.
At the most you can raise. It is the 9.9% is the allowable rate. So even though someone moved out, it's a new tenant, all of that stuff, you still have to only increase at 9.9% in the city of Portland.
Obviously there's a lot of people here listening who aren't in Portland. But I think the idea here is that you see a lot of times, West coast and major cities leading the trends and some of these things. So I think as you start to see , this become an issue in more cities and also, ADUs becoming more common in places that aren't like Portland or aren't like Seattle, you'll see a lot of these, a lot of these regulations type, trickle down. And it really, it is like in Portland, it is an experiment. I mean, it's, it's really an attempt to see, like, does this work, does this, not, not depress, but does this sort of just suppress the rapid growth we were seeing in rent?
Obviously , you can't now sort of get a good baseline because it's all been [00:17:00] thrown into chaos essentially with, what's going on, with COVID-19 and economic destruction from that. But that was really what the city was attempting to do is seem like, is, do, does this work essentially.
Kol : So I'm generally concerned about restrictive rental regulations and their potential to adversely impact housing production in the ADU space in Oregon, Portland, but even more so in California. And I'm not going to pretend to be a subject matter expert on the rental regulations of California, but I have heard they're quite onerous.
So I, I do think that's going to dissuade people's interest in general in becoming a landlord cause they're freaked out about becoming a landlord. So as a general policy matter, I'm interested in seeing some carve out legal exemptions for screening criteria and lease duration, flexibility for owner occupied properties.
So that owners [00:18:00] have a bit more control about who they're living with. And it sounds like Portland's kind of doing this. So I guess I'm curious for your thoughts about this idea as applies to ADUs and middle housing in general. And so can you talk about that and does do these regulations also applied to middle housing, triplexes, fourplexes owner occupied?
Kurt: They only apply to duplex. So anything over a duplex is considered, falls into the other category of the other types of your rental properties. So it only applies to owner occupied duplexes and ADUs where there's, the primary residence and the ADU on-site and the owner is living there.
So that's, that's really the way that the city and state have been distinguishing these. Yeah, I think in general, yeah, as I discussed there, there is this, do you have, setting it, bringing a separate sort of class of, of rental property. And I think you're going to see that more and more, especially as people, advocate for that.
So especially as people who are ADU owners and are an owner occupied [00:19:00] situations, or are agitating for that. The other thing to keep in mind is that certain fair housing act regulations don't apply to owner occupied or to ADU. So. I'll just say an owner occupied, but I mean, both obviously. And so the fair housing act and I'm not an expert on, on actual the implementation of this, but basically they've tried to make allowances for, the type of situation you're describing, where people want more control over.
Who's going to live in there because they live on site. So you don't have to follow , protected class guidelines, the way you would, if you were, if you owned a larger rental complex, or even just a single family rental. So you're given exemptions for that. You're obviously in Portland, given exemptions for rental relocation assistance, you're given exemptions for just screening in general.
So there you do see an attempt to accommodate the fact that people want more control over who's going to be [00:20:00] living on the same property that they, that they own, that they live at. So that's something that definitely happens. I mean, I think in general, the attempt with the screening criteria that the city of Portland did was to remove all bias whether conscious or not on the part of the landlord.
So basically just remove all of that. And just say, you have to look at these specific criteria, so you can view regulation as, onerous and problematic, which it is in some ways, but you can also view it as setting a clear framework for how you can and can't act in the market. And so it's sort of like, from my perspective, as a, as a property manager, the screening criteria to me, it just says, tells me like what we can and can't look at, and that's, and that's all it is.
I mean, you can, you can make arguments about, 'Oh, you're going to get people in properties that aren't able to afford it', all these other types of things. But, in my mind, it's just the regulation is, what it is and you just have to follow it.
Kol : So despite the seemingly seemingly complicated set of rules for [00:21:00] being a landlord, my personal experience over about 20 years doing this is that it's been very easy.
I mean, there's a reason why passive income is called passive income. It's relatively simple way to make income. And only rarely in my, in my personal life have situations arisen where there has been a problem with tenants. Especially when I've been living on the property with tenants, whether it's been in the ADU and I was renting out the primary house or vice versa.
So with all that said you're a property manager and I'm curious what are some reasons that owner occupied ADU owner would want to consider voluntarily giving up 8 to 10% of their monthly income, which is what property managers typically charge to use a property manager, or do you just, would you generally say in a non self-serving way that's not really needed, you don't need a property manager at all? What, what are your thoughts [00:22:00] about that?
Kurt: Well, yeah, there's, there's, I mean, there's a couple of ways to think about it. I mean, I think, I hired an accountant for a reason and I've hire general contractors for a reason and it's not to say that I can't do my own taxes. Or that I can't take on a project, which I can't take on a project, but , that's not to say you can't learn how to do that, but a lot of people, it's not really an efficient use of their time and it's not really how they want to be spending their time.
So I think that sort of, how do I best use my time? How do I best allocate my resources is one reason people go with property managers, another is, market acumen. So, knowing what rents are knowing what does, and doesn't make sense to invest in. I was listening to the one yesterday, which was obviously dealing with appraisals and in a lot of that was resonating with me where, certain choices people make in terms of what they think will be, will drive, rents up.
If, if you were to consult with the property manager before that, they would say, no, you're not going to see a big, a corresponding bump in your rent to have that make sense. So I think [00:23:00] market acumen is part of it. Obviously in Portland, in Oregon, it's knowledge of state and local regulation is a huge, huge part of it.
I mean, if, and this is, this doesn't necessarily just apply to ADU owner occupied, but , the security deposit ordinance, if you run a foul of that and obviously the security deposits are some of the most litigious aspects of a lease. So any time you keep back part of the security deposit, the tenant's going to probably challenge that and sort of what's considered reasonable wear and tear.
There's a lot of gray area there, but if you run a foul of that in Portland the penalty is two times the security deposit, plus attorney fees and actual damages. And also even if the owner , wins the claim, they still can't recover their attorney fees. So in that situation, you can easily imagine, someone who's got an ADU that's $1,500 security deposit, top of 15, plus your attorney's fees.
That's easily, five, six, $7,000 penalty there before it's all said and done. So I [00:24:00] think working with somebody who has a really deep understanding of the regulation is a reason. And I mean, I just always come back to like the idea that has literally happened in my cases, when I did have my own rental property, which was, the water heater went out at 7:30 on Friday night and it's like, then we're over there doing that.
And I think for a lot of people , maintenance is what people come back to time and again. It's a reason they don't want to do it. They it's something they don't want to think about. I mean, when you thought about passive versus active income, there's certain times when being a landlord feels super active and then there's other times where yeah.
Months or weeks will go by where it does feel very passive. So I think for the people listening to it here is obviously a very motivated, like entrepreneurial group, who a lot of them will be self-managing. But I think, most of the people I talked to and the people that I work with you have ADUs, they just don't want to deal with that.
And especially the more regulation there is, they'd rather turn that over to somebody who specializes [00:25:00] in that and do they pay up, 8% is what might my fee is, but who pays that, on a monthly basis and just kind of takes care of everything for them.
Kol : I'm going to run a little spontaneous experiment here, there a question in the queue from Kevin about People who are maybe inclined to build an ADU, but they're a little bit freaked out about the idea of becoming a landlord because they've been hearing these nightmare types of legal changes that are occurring within their city.
So I would like for landlords who are in this call to put in their thoughts about what advice they would give to newbie potential ADU developer/landlords, to help them feel at peace with the idea, the prospect of building an ADU on their property. I think you would have some suggestions for that too, Kurt, but I'm going to see what responses come out of that.
And go on to my next question for you. So you have a unique service that [00:26:00] you provide for ADU owners that I haven't seen other property managers do. Could you talk about that business proposition?
Kurt: Yeah. So, what I really saw the need for was for lease services around ADUs.
So, a lot of where issues come into play is, the type of lease that you have with somebody, or the lack of lease, how that's all documented, the application process. We've obviously talked about screening criteria being important. And even though it doesn't some aspects that don't apply to ADU owners, you still have to follow, there still are at the state level, legally binding screening criteria.
So really, yeah. What we offer is It's a set of lease services that basically for ADU owners we handle the application process. We run the background and credit checks, so that involves obviously a credit check eviction history rental history, all of the sort of, background information that you would want to know.
So I work with, TransUnion who obviously is a big provider of background and credit checks. So we [00:27:00] provide that service and then we do the full lease for you essentially. So that is at this point, leases in the City of Portland and run 18 pages or so. And so yeah, the full lease , all of your, sort of carbon smoke detectors, all your molded addendum, is basically that entire package that makes your legally binding lease with the tenant. And the way it works for us is this is assuming that the ADU owner has already found the tenant. So we don't go out and market the property on that falls into, full service property management situation.
But if, if you have, a tenant or you're pretty far along with somebody, we can basically run that entire process for you and make sure you all at the end have all of your documents and your legally binding lease. And so for that we do $300 for that service and that's a, just a one-time flat fee.
And at the end of it, you're then in charge of rent collection and ongoing communication and maintenance and all of that. Yeah.
Kol : I liked that. I liked the concept. I don't know whether that's going to be like of a business line [00:28:00] that's going to generate tons of cashflow for you individually, Kurt. But I do really like that concept of having this kind of standalone piece that you offer for owners who are concerned about dealing with the most, potentially legally challenging portion of the process. And also, doesn't require that they have to give up 8 to 10% of their rental income each month. Which to me is where I balk at the idea of using a property manager at least locally now in my personal case, I own rental property in locally and I manage it all myself and then I own a property not locally. And I do use a property manager. So I experienced with both and it is awesome. Having a property manager makes it so easy. Oh my God. But , I'm giving up a couple hundred bucks a month and most of the time they're not doing much.
Kurt: Well, I don't know about that, but I know for me just to go back to your point of like the, the reason that I set that up in the first place is. [00:29:00] I do think it's a, it's a useful service and it has proven to be for people, but also from my perspective, people who have ADUs now or owner occupied, those are the people that, five years from now are going to be buying, a second. Maybe they buy a fourplex and maybe they buy a couple of single family homes that they want as rentals.
So those are the people that you'll see moving more into having investment properties and rental properties. And so I want to develop a relationship with those people early on, and, they see value in the service that we provide. Then maybe they'll work on me down the line. So yeah, it's definitely, the core of my business is full service, property management.
And I do that for people with ADUs. I do that for people, in multifamily, single family homes, all that. But yeah, I view this as sort of a nice introductory service for people and also for people who. They do want to have the experience of managing on their own. I mean, that's how I got into it as managed my own property.
And, that's a very invaluable experience to know how everything works and to know what the concerns are, know what, how a tenant is going to respond to something isn't [00:30:00] always how you think they will. And so having a really good understanding, understanding of what motivates people is super useful.
Kol : One motivation of why people are building is not just the income potential, but also the flexible housing arrangements that they offer for people. And so one immediate thing that a lot of people are interested in homeowners, or is like, 'Can I do a short-term rental?' And a lot of jurisdictions that are allowing you to use are saying, 'You can do an ADU now, but you can't do short-term rental anymore'.
And that's all of California and Portland is more or less has a policy in effect now where for new ADUs, you need to pay a lot more if you want to have be able to do a short term rental. So I want to talk about alternative lease structures that homeowners can consider for providing more flexibility within their ADU to use it for alternative uses such as an occasional family member who wants to come to stay in town.
So can you talk about like fixed term leases and [00:31:00] alternatively structures that are out there?
Kurt: Yeah. So leases typically fall into two categories. There's a fixed term lease, meaning it has a specific start date and end date, and you don't have to give notice for when that lease terminates. So historically that's a year- long lease or there's month-to-month leases and a month-to-month leases, obviously, rolling 30 days. And there is then a notice period to terminate leases.
So the way that. Again, historically is working as the people, when you move into a place you're on a fixed- term, lease for a year. And then after a year that rolls over month-to-month. Historically there is an argument to be made to reassign people, to fix term leases.
So, for another year, but basically what Oregon has done with SB 608, which is the state rent control law is they've been really clear about the advantage that goes into having a month to month lease after the first year of occupancy, because this first year of occupancy becomes very important and the state of Oregon, and [00:32:00] after the first year a tenant, if they're in the same property has a really great set of rights.
And basically it can dictate when they leave. So the only reasons they can be evicted after the first year. And again, this doesn't apply to like non-payment of rent or, destroying the place we're talking about. No, cause what are called, no cause evictions essentially. And after the first year, The only grounds for no cause eviction now in Oregon are, if you're going to be basically taking the property off the rental market.
So if you're going to be moving back into it or an immediate family member is going to be moving into it and they can't find similar housing on the property if the property is going to be demolished, that, that type of thing. So I, I will say though, in the ADU world, there, there is a lot more people do desire a lot more to have, a three month lease or a six month lease and to have that flexibility.
And so I would say, if you're going into that situation, then definitely you want to have a fixed term lease. And so yeah, if you think, Hey, I want to have a [00:33:00] person in place for three months. And that's it. Then three months is the way to go. The thing to keep in mind right now, though that's happening is Oregon.
Because of the, because of coronavirus has said they they've stopped basically renewal of external leases. They've said that you can't renew fixed releases. They can just go over to month to month. So what you don't want to do, or what you can't do is start with a three month lease and then try and resign that same person to a three month lease.
They would have to roll over in the month to month. So that's kind of getting into like, weeds there a little bit, but yeah, I would say, if it works for you and if it works for the tenant where they're going to be there three months or six months or whatever, definitely go with a shorter fixed
Kol : Aside from coronavirus, which changes everything, you're suggesting that it is possible to do a fixed term three monthly , for example, in Portland at that point after three months, I could have another person lined up or I could have another use in mind lined up for the ADU and the tenant [00:34:00] must leave after three months. Is that correct? Okay, cool.
Kurt: So you still would want to check to make sure that like, cause there's, there's more extensive termination notices now, which makes it an a, which are 90 days, which makes it kind of this convoluted situation. Like the second, the day they move in, assuming a three month lease, the day they moved in, you give them, but it's like if you have everything lined up that way yeah, that's, that is the way to go.
And I think, it's like in that situation, the other thing to keep in mind here is, this stuff only gets litigated or tested if the tenant feels that they've been wronged in the situation too. So if you both go into it, knowing what the situation is, having a lease that spells everything out, you're, you're going to be usually in good shape.
And I think you'll rarely find these problems.
Kol : Okay. And my final question here is about like other business innovations that could help make the landlording process better for owner occupied properties. And then also tying in like how you [00:35:00] believe COVID is going to impact the rental market for ADUs specifically, but just let's just say housing in general and residential zones or small housing generally in residential zones.
Kurt: Yeah. To start with, with innovations in some of these are tied to COVID and then some of them aren't, but one that is, is definitely a move towards contactless self showings. There's been a movement towards that in property management for a while now. Because one of the things that takes up most of everyone's time is like actually physically being there to do a showing of the property.
So if you can move away from that model and give potential applicants remote access, then that's something that's really beneficial for everyone. So my company, we we've moved entirely to contact with self showings now. So like how that works in actuality is we verify people's ID ahead of time.
We use lock boxes that are, remote access one-time code. So people get a code on their phone, open the [00:36:00] lockbox go in. We're looking more and more about in certain types of properties where it might be sort of having it, having some sort of camera system and there as well, but so far, we haven't run into any issues with that.
So I think contact with self showings is one. I think a movement away from security deposits is another thing. So what you're seeing more is a couple of models. One is property managers taking on that risk themselves and saying, we're not going to collect a security deposit. And , the first thousand dollars of damage we'll cover. So that's one model.
Another is the idea of basically paying a form of monthly insurance to a third party that guarantees the security deposit. So companies like Rhino is a really good example of that. What they do is, the tenant pays a monthly fee, like, $13, $15 no security deposit is collected, but that money goes away forever.
And then in the event that anything goes wrong or there's a claim against it, then the owner or the property [00:37:00] manager basically files a claim back to Rhino and settles that claim. So I think that that's something you're going to see more and more. I think there's going to be more motivation to collect less money upfront.
Especially as obviously, mass levels of unemployment people have less access to ready cash. Having all of that money tied up in a security deposit is going to, I think be more and more problematic for people. So that's definitely another way I see it. In terms of ADUs and COVID-19, I think there's some things because in the short term that are, that are not great.
It's something that I've definitely been noticing on rentals that I have, where there's an ADU attached is in an era of social distancing, people are really concerned about shared backyard spaces or any sort of shared space that say less than, a sort of city lot size. So I think that that's going to be problematic for people.
Obviously, Airbnb has been decimated by this. I talk to people every week now who built these like beautifully finished ADUs for Airbnb that just came online, that [00:38:00] now there's no market for, and want to turn them into long-term rentals. Those are a couple things that I'm definitely seen as, sort of Airbnb going away for the short term and people really wanting more space and having concerns about having shared space and shared access.
So those are things that I would keep in mind if you're an owner right . Again, in all the things I'm talking about and all this regulation, everything. I still think that, rental investments in ADUs and owner occupied is one of the best ways that you can, basically be investing your money and building up equity and doing all these things and also providing like a really valuable service in your community.
So I think that none of this is to dissuade people. I think it's just, if you're going to go into make this decision and sometimes be spending, hundreds of thousands of dollars on developing these properties, you should really know what to expect coming out of it. And I think a lot of this is about like really professionalizing your approach to how you're dealing with tenants and how you're dealing with all the regulation involved.
But it's still, I think, a great thing to be doing and , you're going to see more and more of it. [00:39:00]
Int
Kelcy: Kurt. I'm just going to go down the line here about some good questions.
What is the definition of living on property for owner occupied properties? This particular person rents the main house to travel for an extended period of time, but plans to move in when the, into the ADU between the extended trips, would that count as owner occupied?
Kurt: I think it depends on how long it is. I'm not sure the answer to that specifically, but yeah, if the idea is also that, like there's not anyone else living in the main property and say, you're gone for, I'm not going to say specific, but let's say you're gone for two months or something to move back in.
I think that still fits the criteria of occupying the primary dwelling . So yeah, as long as there's not anyone else that moves into the meantime, that's a, you're treating us rental , I think you would be okay there, but again, very specific ones like that. I would , I'm, I'm happy to answer a specific question like that afterwards by looking it up, or I would consult with the actual origins on that.
Kelcy: Thank you. What are your thoughts on how new construction rental market is looking in [00:40:00] terms and return on investment over the next year? I have clients who are timid about spending hundreds of thousands of dollars at this time to do new construction?
Kurt: I think it depends on a ton of factors that we don't really know the answer to yet.
Everybody was really concerned about people paying rents in April and that happened and it was fine, but I'm more concerned about what's August look like what's November look like. If you look back on other historic events, they're historic. And so you're able to view them with some remove and some, some distance and a lot more context, but we're in a very fluid situation right now. And it really remains to be seen how all this will play out. If there's, some sort of solution this fall, then that will be very different than if there's a solution, a year and a half from now or longer.
So I will say, I mean, interest rates are historically low and , they're not, I mean, they can't go, they can't go much lower. So that's great for anyone who is looking to make an investment. Now, I think, in general, it's a bad idea to try and time the market. I mean, I think that applies to real estate.
I think it applies to the [00:41:00] stock market. I think that applies to a whole range of investments. I think the individual just doesn't have enough information to really make decisions like that. So I think, not following through with plans now that you were planning on doing, I mean, I don't know that I I'd love the idea of, coming online with an Airbnb this summer.
Like, I, I probably would be delaying those plans, but in terms of, right now we're still seeing the rental market holding up. And I think the city and state have tried to put certain things into place to make sure that, there's not sort of, this massive evictions aren't happening, for example and , for properties that I manage and that type of property, and probably the type of property that a lot of people on this call will have is, most of those people are still by and large are going to be in decent shape.
In terms of the earning potential and things like that. So I don't want to speculate too much about it, but I, I wouldn't be changing your plans wildly right now, based on what's happening.
Kelcy: Okay. Do rentals of rooms or spaces within a single family home that is not an ADU, are those [00:42:00] exempt from the Portland regulations?
Kurt: They would be. So that, that gets treated as a owner occupied.
Kelcy: Do you specifically offer property management services for purely the tenant search contract lease up for a fixed fee or do you manage the whole tenant after that also?
Kurt: I do both. Yeah. So, I mean, there's sort of three models, there's the full service property management. And then there's, as I discussed the ADU sort of lease services light which is, basically you, who the tenant is and then my company provides the entire service to sort of vet them, do the application and do the lease for them. And then a third service I offer is, we do the marketing, we do the advertising do photos, kind of everything that we do positioning for the property and then all the way through the lease signing process and then turn it over to you.
And so that's, that's a third model of something I offered. I have actually, I have a property that's going to be coming on next week that falls into that category. And for that, that the fee is, [00:43:00] is one month's rent. And then, okay.
Kelcy: Do you offer your services in Portland only? Or do you do anything outside of Portland?
Kurt: Outside of Portland. Yeah. So the way that licensing works in Oregon is it's, it's a statewide license, so it's essentially a real estate license. So yeah, I work throughout, kind of the greater, greater Metro area and beyond, I mean, I don't say work down in Bend or Salem or things like that, but yeah, the greater Metro area I'm working.
Kelcy: Great. Thanks. Do you, or are you aware of the City of Portland still offering the landlord tenant 101 class? Is that something that you offer?
Kurt: Yeah, I think they, I think they have been offering that. I mean, One thing that is still really happening is, I mean, even more so than before are things like this.
So, I'm a member of Multifamily Northwest. I'm a member of NARPA, which is national association of rental property, residential property managers. And those people are doing, they're doing classes on a, on a daily basis, on a weekly basis. [00:44:00] So the city, I would think they're still doing some of their classes.
I also do, I teach a class for brokers in realtors that's through various title companies. So if anyone after that is interested on an information on that, just go ahead and email me and I'll connect you with basically how, how that happens. It's typically through, I work with title companies on that.
So they, and if you're able to get a continuing education credit towards your license. So yeah, that's something that I do also typically on a weekly basis.
Kelcy: And for those folks who are planning on doing leasing themselves, can you offer are there any boiler plate legal contracts that they can access?
Kurt: Yeah. You want to be using in Oregon, there's swell important and there's two there's multi-family Northwest. And then there's also Oregon rental housing, I believe is what it's called. I use in most people use Multifamily Northwest. So they have a couple of different services. One is you can buy, one time printout fees or I'm sorry, [00:45:00] one time, for fee one time applications and forms.
The second is a sort of on demand subscription-based model for it. So yeah, those are, those are basically the standard leases and standard notice forms , rent increases, security deposit forms. They had the whole suite of forms and that's actually, I use those forms, most property managers and landlords in the city use those forms because they've just been vetted.
I mean, my, the attorney that I work with he's on the committee that basically writes all those forms. So it's just a really it's a good thing to be using those. I wouldn't just, Google lease agreement because we live in a very, very unique market and you want to make sure you're using all of the up-to-date leases, but yeah, that's, I would highly recommend the Multifamily Northwest leases.