So I own rental properties in Spokane Wa. And while rent control is currently not allowed by the state’s constitution, there’s a growing group calling for rent control. Realistically it looks like it’ll happen in 1-4ish years. I suspect the majority of my rentals will be affected (most built prior to 1980). And they’re mostly in Spokane city proper. They’re also almost all lower income.

In addition I know rent control doesn’t work. I’m not an idiot, I know it’ll lead to shortages and/or quality reductions. But what I’m asking about, is there anyway for me to hedge?

I could of course sell some places and buy in another state. I could also rent places and then illegally sublet them in the future lol. But I can’t think of any legitimate hedges.

Any suggestions?

P.s. please don’t turn this thread into a “is Washington going to enact rent control or not,” or “is rent control a good idea or not,” if you want to do that create your own thread. This thread is meant to be, “is it possible to hedge some of the risk/cost of potential rent control as a landlord.”

First figure out how much such legislation will impact your rental income and property values.

Depending on how many properties and the details, you probably should just take your bad beat if it passes. The financial and time costs for selling RE, purchasing new RE, and everything in between will probably be too steep.

However, read the article below. If you insist, you may want to purchase high-end properties in your neighborhood, and make sure that your contracts can be renegotiated before such legislation passes so you can move back in.

Maybe turn them all into airBNB places. Rent controls won't apply.

https://www.gsb.stanford.edu/insight...winners-losers

Buy bitcoin. Short the housing market.

Ya, sell now

It shouldnt hurt you for a few years so I wouldnt worry too much

make sure you mark it up the max every year. I had a landlord that didnt for 6 years

aside from that I think you want some degree of turnover so you can mark it up to the market, every 5-8 years would seem about right. You can do this by:

- ousting people to do renovations (with fair notice / terms obv)
- declaring a relative needs to live in the unit
- flipping some buildings that have no more possible upgrades and buy ones that have upgrade options
- renting to people that wont stay 20 years. young people that will likely change careers / have kids / buy a home are a good candidate.

to optimize you would not do any incremental upgrades. Run the place into the ground with neglect, then empty the place for a major upgrade and mark it to market.

I realize this is in the prick landlord territory and I'm not saying I would personally be this aggressive...I wouldnt. but these are some of the tools

"The big winners were people who were lucky enough to be under rent control back in 1994. Those renters saved between $2,300 and $6,600 a year — a total of $2.9 billion in benefits from 1994 through 2010. Many of those beneficiaries were older people who had deep roots in their neighborhoods."

exactly. Rent to a retiree that sold their home but has deep roots...they'll never leave. but they may be great tenants so you have to decide what kind of tradeoff makes sense.

also what you lose in rent you will likely make up in capital gains. rent control will short the supply, increasing the value of your asset. Overall if market becomes riskier you should make a higher return.

How public is the information, when will it come into effect and what do you expect the actual rent control to be?

The downward pressure on price will come initially (and swiftly) from the market being flooded with people like you trying to unload their properties. If you're quick on the draw you can avoid that.

Whether you'd want to i guess depends on how severe the control will be.

https://escholarship.org/uc/item/8c9648s1

Which were pretty strict regulations capping the annual rent increases at less than inflation. How far it caps it below inflation / other restrictive conditions makes a big difference since it'll compound every year (and is amplified if the area happens to go up in value obviously).

Alternatively,

Assuming that you will be able to charge current rent after legislation passes, your properties will still be worth the same on cash flow basis. It is only as time goes on that they will not appreciate as much because the cash flow will not be increasing nearly as much. So, you can always sell at very similar market value as right now after the legislation passes, right?

A rational computation of value for the properties is based on future projected income streams, not current income streams.

It becomes integrated into the price as buyers/sellers become aware of it.

Thanks for the posts guys, LOTS of good stuff to think about. Here are some random (and very possibly wrong) thoughts I had on the issue.

1.) Usually rent control affects older buildings and not newer buildings as the state/local government doesn't want to affect new construction (even though it does anyways)....My oldest rental was built in 1908, and newest built in 1981, with the vast majority being built in 1978-1981...so I think that'll mean all of my buildings will be affected.

2.) I'm sort of under a soft rent control right now. About 50% of my tenants are section 8 (used to be lower then that % wise, used to be 20-30%), and they set a maximum rent that can be charged. There's ways to work around that cap, and you can of course rent it for more then the cap to non section 8 tenants, but so far I've been right at that cap for the past 4ish years. (example: 1 bedroom cap is $668, all of my 1 bedrooms are $665)

3.) I have no idea how rough the legislation will be on me. Washington state has gone super liberal, and I fear it might be REALLY bad. What makes me say that is their new eviction reform bill. Evictions went from taking 3ish weeks (if you knew what you were doing and you gogogogo'd) to now they'll take about 4 months (beginning July 28th). That's a huge ass difference. It wasn't like they went from 3 weeks to 5 weeks. Or even 3 weeks to 6 weeks. 3 weeks to 4ish months is like a 4x increase in the time.

However Oregon is one of the most recent states to pass rent control. But they capped it at 7% + inflation. So as long as the inflation rate isn't manipulated too hard (of course it'll be somewhat manipulated, that's what the government does), it probably won't affect a thing.




Side notes looking for advice: Personally I used to play poker for a living, and invested in real estate on the side. However in June 2018 I retired from poker, and pay 100% of my bills from real estate. Which was my "goal" when playing poker. (haven't played a hand of poker in over a year)

Now I'm doing real estate full time, while building a vending business on the side (I do everything from gumball machines for quarters, to keymasters in movie theaters)....I'd really like to get to the point where vending can pay all of my bills, so I'm not relying on either income stream exclusively.

I invested a LOT of time, energy, and effort into real estate. And it's cash flowing like crazy (I paid off a bunch of the mortgages in 2015-2018). I'm in a really good spot right now (my "goal" spot when playing poker), and everything is going great. But I'm SOOOO negative on the future of real estate that I don't know if it's just me emotionally overreacting, or if I'd be stupid to stick it out.

Part of me wants to just "ride my real estate bet out, and see what happens over the next 40 years"...whereas another part of me wants to cash out and just do vending (and buy real estate in Idaho on the side, since I technically live on the Washington/Idaho border and do live on the Idaho side)

Any advice would be appreciated. And I know I'm being a whiny ***** (first world problems) but having people to talk to about it really helps. Everyone in my day to day life is either an idiot or doesn't really care about this type of stuff.

I'm not sure why you are so bearish on real estate? Granted the market in the US seems to have huge highs and lows, cashflow is cashflow, people will always need a place to rent.

I live in a rent controlled place where it takes 4 months to do an eviction. A tenant who knows what he is doing can live in your property for over a year legally without paying any rent. The way I counter it is by offering a good product and screening screening screening for better tena t (now, i didnt last year). I'm only starting, I had an eviction start of this year, a tenant I did not screen properly and damn was it tough, its done now. Worse that could happen happened and it's annoying but is still worth it.

Rent control I do not consider in my pricing, if a tenant gets a little attitude after I show them the previous price, I dont rent to them. Your market will adapt, the tenants will always pay your bills, your mortgage, your living, everything these poor people do to create the illusion of fairness will end up biting them. Because it's a market, it adapts and adjusts itself. Landlords must make money.. or there are no landlords

You are in an amazing situation, actually my goal and dream situation, if 95% of your networth is in RE I understand why you are incomfortable. Easy to diversify your wealth, hard to find something that will give comparable returns thought. Just curious how many units do you own and how much cashflow are they producing?

Were you alive in 2008?

Yes, people need accommodation, but the housing market has become the ultimate ponzi for speculative and foreign investors.

You may not factor in rent controls to your pricing but it will effect you in a big way. Like you said, local real estate markets are swingy and a big part of your gains come from the possibility of above market appreciation and the associated rents.

In a non-rent controlled units in a booming area you may be pulling in 6-8% a year in rent, but with a rent control after a few years of strong appreciation you may be capped at 4-5% with your rental income as a percentage of value dwindling year on year until the tenant decides to leave (which they're increasingly incentivized not to).

Your up side is capped and your downside is not.

There's no amount of screening you can do to stop this because almost nobody is stupid enough to move out of a place where they're locked in at rent well below FMV unless they absolutely have to. It's an entirely separate thing from risk of them not paying rent.

This is true. You can always negotiate with your tenants for them to leave thought. There also are legal creative tricks to put your units back to market rent even with longterm tenants and rent control in place.. just think. I'm not defending rent control, i'm just saying it's not THAT bad, you don't need to cash everything out and pay taxes on great cashflowing assets because of some politician playing with the sheeps mind. I have no clue what a market without rent control is like, I'm just saying we do fine with it here.

I was alive in 2008, but I was like 18 years old and we didnt feel it much here in canada qc. Market was just flat for a while and then it went up again. We have different rules, different regulations, different financing method and criteria, different consumer debt mindset. Our market is much more stable than USA so investors are willing to accept more risks (like rent control). I don't know the US that much which is why I was asking why he was so bearish. Rent control + USA volatility is what is scary maybe? Then cashout. Hell I'll buy your houses OP, are you managing them yourselves right now?

Thanks for the feedback/discussion/debate guys, I really appreciate it.

I think my mistake was having too large of an asset allocation to Spokane WA real estate. If I had 5% of my net worth in Spokane RE, I wouldn't give a **** if they passed rent control (not like I live there anyways). But the % I do have causes me to stress/worry about it happening, therefore my % is too large.

Accepting the fact that life has risks, and investing has risks so you can never be 100% safe is apart of life....but losing sleep over a "very possible bad beat" is not a good life strategy.

For right now I'll be shifting 100% of my real estate profits to vending growth (hiring people and buying more machines).

It also wouldn't surprise me if I dropped 1-2 of my worst performing rentals in Spokane and bought 1-2 in Idaho. It'd diversify me a little better, and if I did middle income in Idaho (whereas I currently do all low income in WA) that'd diversify me a little more too.

Thanks again for the feedback/input guys. Being able to sleep at night is important, even if it means earning a little lower return.

Meh, you already have Section 8 tenants with built-in limits. I'd be more worried about de facto rent control like in San Francisco, where you have to plunk down $20k+ to evict someone, and even if you do plunk down 20 grand there is no guarantee that a tenant with a good lawyer won't just drag out the process for years on end.

Lets hear more about the vending business.

I think it's good to get out of Spokane. Isn't the meth problem there getting huge?

I second this. Maybe start another thread?

OP: I manage around 40 Airbnbs in WA and 350+ nationally. Let me know if you want a revenue estimate.

Does Airbnb work in the ****ty parts of town?

Would also like to hear about vending machines...