Don't Buy A Rental In Oregon Until You've Checked These 3 Things | Ep 98

James: I'm gonna try something new here. I don't know if it's gonna work. This may be a complete dumpsters fire of a show, but we're gonna do it anyways because what we're talking about is buying an Oregon, and more specifically, don't do it until you know at least know about and check on these three things because it's really important in Oregon.

Hmm. And that's what we're gonna be talking about on the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. Oregon and our mission is to equip Oregon investors to invest wisely in both property and people so that together we can build wealth while improving housing.

I'm James, and this is my wife, Oregon who lives in Oregon. Jesse, I'm

Jessi: Or Oregon Transplant.

James: Oregon Transplant, yeah. Are we Oregonians, what's the, what's the rule for

Jessi: I think, well, okay. As far as I'm concern, concerned kids are, if you were born in that state, then you are that. Okay. That's it. I don't think you tra Yeah, I don't think you transfer.

Dunno if I believe that. Because you've been there for a long time. I don't think so. You, you're, you're still called a transplant, in my opinion. It's not just when

James: you get an Oregon driver's license, you're now an Oregonian.

Jessi: I don't know. Some people have different rules. I,

James: I know. I'm trying

Jessi: to figure out.

I'll always be a Coloradan. Wow. And so I'm

James: always a Californian.

Jessi: Yeah. Okay. And then. We moved to Oregon. Can I be

James: dual? Can I be both?

Jessi: Dual

James: citizenship can be both. An Oregonian and a Californian. Ugh. I think most, I think everyone just listening just rolled their eyes at me like, Ugh. Pick a side, pick a team.

All right, cool. Well, that's what we're gonna be talking about is

Jessi: one of 'em has to be like something with water. Rain, flooding water. Oregon's wet. Check you're talking about the, I'm talking the checklist saying, I was like, I thought we were

James: talking about citizenship. Oh, you have to be okay with water. You don't have to be okay with water.

If you wanna be an top hand keep, I'll never be way to keep us on topic or, I was not ready for that. Yeah, no. Oh man, I appreciate, alright. Yeah. So I have no idea. And I think I just turned off my screen to record, so that's exciting.

Jessi: The. The slides are still up there.

James: Yeah. 'cause I just turned 'em back on, but I'm pretty sure it's no longer recording that particular thing 'cause I tried pinching.

Oops. Dumpster fire on track. Here we go. The other really cool part is I cannot read any of this text. It is so small. I mean, we often joke about like, yeah, we're getting a little older, but like. That is very small. Well, it's

Jessi: like

James: black on gray also. Alright, so here's why we care about this, why you would even put up with investing in Oregon at all.

Right? Yeah. I think that there's still a lot of demand mm-hmm. For it. And so I think that's just because of the sheer, the fact like ideally you want to invest where supply is less than demand. Mm-hmm. And that's the case in Oregon. Yep. So that is really appealing. And and, it's just also important to know.

Yeah, I think that's, at the end of the day, that's why it's interesting and real estate prices continue to go up pretty dramatically, just like all the places on the coast. And so that alone makes Oregon an interesting place.

Jessi: But like we talked, what are some examples of states that demand you know, it's flipped.

Like you wouldn't wanna invest there because the housing market's saturated and. There's not a big demand for

James: Yeah. That's one of the issues that's happening right now in places like Texas and Florida. Oh, because everybody's moving at all. There was a lot of demand. No, there's just, there was a ton of building that happened.

Oh, they've caught up? Yep. Mm-hmm. Interesting. So they're watching prices actually go down and stuff. Huh. And so yeah, Arizona's kind of going through that a little bit. Pretty much all of the markets that were super hot. Year or two ago, evolved, cooled off dramatically because yeah, they just, they go through these big fluctuations.

Mm-hmm. That makes sense. We're getting pretty steady, Eddie mostly 'cause we have building codes that are written in such a way where there's not gonna be a boom in building.

Jessi: Oh.

James: And so it's slow. Just won't happen. Yeah. Demand

Jessi: continues to be high.

James: Alright. So the first problem, and I think. Bet you can guess this one has to do with regulations.

Mm. Oregon is definitely a tenant. Landlord. Nope. A tenant friendly state. Yep. And and it's pretty bad in terms of what they allow. And this is so tiny, I cannot read it at all. There we go. That's slightly better. Yeah, so like for example, they have rent control. Mm-hmm. So you can't increase prices more than 3% plus CPI, but they cap it at 10%.

Mm-hmm. So we've actually been capped at 10% the last few years. Next year it's gonna be different. It's actually at nine point half percent.

Jessi: Oh.

James: So we're actually within the normal range again, which is which is really nice. There are also really big eviction challenges. Related to it. It's, it's just not easy evicting a tenant here.

I've had multiple situations so I recently in eviction court and and they ask all sorts of questions, right? Mm-hmm. They, they check your paperwork, they really wanna make sure that it's filled out correctly. They wanna know, did you verify that the person still lives there? Like earlier today, did you verify, like saying like, oh yeah, three days ago?

Like, no, no, no. Doesn't. Wow, that's, that's like, they might have been out or even saying yesterday, they're like, well, maybe

Jessi: hmm.

James: Which just having a photo and be like, here's what it looked like yesterday. You know? 'cause you could see all the stuff. They'd be like, oh, okay. Yeah, yeah, yeah. Yeah, they'll ask like, have you tried to work out?

Like they're just very, like, which I get, like they're protecting at tenants. They live there. Mm-hmm. I get it. But it's definitely a thing. There were even times during COVID where like Oregon put in moratoriums where you couldn't evict people. Mm-hmm. Just period. I continue to lock down restrictions.

Like the latest one I think is it's a mother, if it's a single mom with a kid under, oh gosh, what is it? Like three years old? Mm. They're protected from eviction. Yeah. Just because, just Well, yeah. 'cause you know, that'd be hard. I mean, it would be hard. It would be hard for

Jessi: anybody.

James: Yes,

Jessi: for sure. But,

James: and they didn't really have different city by city enforcements like Eugene and Portland are even more restrictive than everywhere else.

Interesting. And so you just gotta like, you gotta be on top of that. Yeah. You gotta pay attention to it. Ideally you hire a property manager like myself who's on top of it, who does keep on all of that to then worry about it. That's probably that's one of those. Unless you're really willing to dive into it.

Mm-hmm. If you're gonna invest in Oregon, like, nah, just have someone else do it. Mm-hmm. It's, it's just not worth putting up with it anymore.

Jessi: Mm.

James: Let's see here. Okay, number two thing that you want to, check in on mm-hmm. Before you invest in Oregon, it's just the, the operating costs for it. Taxes are a thing in Oregon.

So they don't have sales taxes. Right? Yay. But we do have property taxes, and they're not the highest I've ever seen in the country, but like, they're higher than, they're a thing other places and they regularly adjust. Like for example, in California, they're locked at, I don't remember, it's like 1% of mm-hmm.

The sale price. And then there's a small increase every single year. Mm-hmm. And so you actually have an incentive to figure out a way not to sell the property in Oregon or in California. In California. Mm-hmm. So you could have two neighbors who live next to each other have very similar houses, and one of 'em could be, I kid you not paying a 10th in property taxes.

Wow. Versus the other one's. So weird. Yeah. Just 'cause they live there for 30 years. Sure. And it hasn't increased. That's just, yeah. Yeah. I remember I was, I was working, I was doing an internship in California at one point and like there was this guy, he was just like, he was. Personally upset about it because he had recently bought a house and he looked at what his neighbor was paying.

I'm like, dude, like, yeah. Can't compare. Who cares? Like, it's not like you didn't know the game Yeah. When you decided to get into it. Yeah. But he was like, we gotta change the rule. I'm like, yeah, no, Oregon change the rule. Like it's, it's not, it, it all adjusts up some amount. It's usually, my observation has been, it's somewhere in that like two to 4% range every year.

And if you make significant changes, they reevaluate. That's the thing. And so you just gotta be aware of that on the property tax front. Insurance premiums continue to, to go up. It's just a thing. Yeah. Which I guess these are, you know, that one's true for everywhere for sure. Utility costs.

Interestingly, in Oregon, we're going through the racial utility billing system. Trend right now. What is that? So if you have a multifamily that has a shared utility mm-hmm. There's mathematical ways to split up the utilities and charge it back to those tenants. Mm-hmm. Okay. And historically that never happened in Oregon.

Yeah. It just wasn't a thing. Now it is becoming a thing.

Jessi: Oh.

James: And so it's kinda like a one-time goose that you get to everything. Mm-hmm. And then once it's done, you're like, all right, like, that value's been extracted. Cool. And so that's actually what I've been going through and doing for a bunch of properties for it.

But that's the transition that Oregon is making. And then there are certain places. Not true in Corvallis, but in places like Bend where there's licensing fees and rental inspection fees and stuff like that, you just gotta be aware of 'em. So just pay attention to some of those not hidden costs, but just those extra operating costs when you are buying in Oregon.

Lemme make sure I got everything I did. Cool. Alright. Number three that you gotta be aware of is market liquidity in exit options in Oregon. Mm-hmm. So there's just. Depending on where you buy in Oregon how do I, like, there's just, there's some big places. Mm-hmm. Think Corvallis, a lot of 'em on the I five.

Right. They're bigger metros, but man, you get like 10 minutes off of I five and like you think like a sweet home. Or if you go out on 84 like a Baker City. Mm. They're just small. Yeah. And there's not a lot of liquidity out there. You may have a project where you're like, oh, this is a fantastic deal, so awesome.

You go in, make the improvements, put it on the market, and it's gonna sit. Nobody will buy forever because it just doesn't have enough people rotating through who want to buy. Mm-hmm. Mm-hmm. So you just gotta be really aware. And there's some sweet spots, like Albany I would say is like mm-hmm. It's on I five.

And so it has a lot of that turn Lebanon, maybe Lebanon's like that one where it's like, it's right in the in between 'cause it's 10 minutes off I five. Mm-hmm. It's not too far away, so it's slower, it's not quite as hot. So you do get better deals, but you also gotta be patient with those deals. Mm-hmm. And we had that, we did a flip earlier this year and that was the case.

It took longer to sell than we thought it would. Was that in Lebanon? Yeah, it was in Lebanon. Just 'cause it's like a tweener, it ultimately sold for what we thought it would off path a little bit, but yeah, it was just, you just gotta be aware of where you're buying. Interesting. You also gotta be aware of what I would call like institutional avoidance.

So one of the big strategies with storage facilities mm-hmm is you buy a smaller one that has some land attached to it, and then you build more units. Mm-hmm. Okay. And the goal is to get to a minimum of 300 units, ideally like 500 or more. That's huge. 'cause once you hit those number of units.

Institutional buyers become interested in it.

Jessi: Oh, Uhhuh. Okay. Like that's a tipping point because they

James: want a big one. Yeah. And here's the deal, like they just want the cash flow for their investors. Mm-hmm. So you might buy it smaller one at like say a nine cap, which is a great deal. Awesome. Cash flow. You love it.

Spend the money to build the other one, and you can sell it to an institutional company at like a five cap. And so they're willing to pay a whole lot more for the revenue. And so you just, you just created this huge wedge of value. Like that is a classic strategy that a lot of storage investors

Jessi: do. And that's like the infrastructure to put in more storage units is pretty low cost.

Is that the idea?

James: Yeah. Yeah. Cinder blocks some doors. Sure. No utilities. Yeah. Maybe some lights, maybe not fancy. Fence and, huh? Yeah. Yeah. Relative to say other. Yeah. No, it's definitely, yeah. It's funny, a lot of people, they talk about like, oh, I wanna buy storage. 'cause it's so easy to operate and like, yeah, no, that's not where the money's made.

Yeah. The money is actually made grow in this strategy. You buy one that an institution is not interested in, turn it into one that they are interested in.

Jessi: So why aren't we putting more storage units on our storage place? I don't

James: having any land to do that. Otherwise I would,

Jessi: I mean.

James: I thought about, I have thought about, so between ours, there's actually a, there's a plot of land right in between it, I've thought, like, what would it look like to buy that bulldoze all that down and put in just a big, you know, yeah.

World class, whatever storage facility. Huh. But it's not for sale, and I don't, yeah,

Jessi: maybe not right now,

James: but, I mean, but that's the, like yeah, that's the, that's the actual strategy that like true, like storage investors do, huh? It's not just about, oh, I wanna buy something that's easy. Cash flow.

Jessi: Yeah.

James: I mean, it is, but.

Jessi: Yeah, there's a value add there.

James: Yep. Yeah. So yeah. But, but the problem with Oregon is that there are just enough rules and policies in place that institutional investors are less excited about Oregon. There's a lot of other places. So you just, it kinda makes sense. So if you're going for that kind of strategy where it's going to depend on an institutional investor, or if you're doing like, Hey, we're going to, we're gonna get involved in a syndication where the idea is we're gonna.

Take it from a fixer upper and then we're gonna beg it better, increase the rates, and then we're gonna get some sort of agency financing, you know, financing debt.

Jessi: Mm-hmm. You

James: just really wanna make sure before you get into it that they're gonna be interested in this project. 'cause they may not be.

That was actually one of the struggles I had with Baker Tower was, believe it or not, from an agency debt standpoint, it's a small project. Mm-hmm. Because it was only a million dollar loan and. And they were like, eh, it's kind of in a small place. Interesting. So they were less excited about it. Yeah. So I had to, I had to look for a local lender to pull it off.

Hmm. So yeah, that's just one of those like, just gotta be aware of it. Types of things.

Jessi: Yeah.

James: So when you're also thinking about that exit strategy, the question you gotta ask is, who's gonna be my buyer in five years?

Jessi: Mm-hmm.

James: And if you can answer that question confidently and you know conservatively Yeah.

Then you're good. But. You just gotta pay attention to it. Mm-hmm. Even if you're like, I'm gonna hold onto this thing forever. It's a 30 year investment. Yeah. Yeah. Okay. You wanna have options. Who are your kids in case gonna sell this thing to in 30 years? You just wanna be able to answer that question.

Mm-hmm. I think is what's important. So here's some things you can do. When you're thinking about investing in Oregon or investing with someone like myself mm-hmm. Who's investing in Oregon, making sure that they are doing these thing types of things like that. They're talking to the city hall office just about licensing inspections and enforcement timelines.

Mm-hmm. And which that's often times. Yeah. Call the city. At the very least, I'm trying to verify how many units do you guys think is here? Yeah. How is this recorded on your end? What other issues are going on? It's less important if you're just doing a buy and hold, but if you're doing any sort of work, you definitely want to know how all that works.

Like we were in doing a lot split and it was super easy and it was like, oh, there's a process here we need to know about. Mm-hmm. You also wanna just make sure you get your expenses as close to accurate as possible. Mm-hmm. Thankfully, Oregon has all of its stuff online and so it's pretty easy to get all the expenses.

Mm-hmm. Which is nice. There are some states where it's like, nope, sorry, like, walk into the office, or you make a request for the information and they will mail it to you. In the world. Yeah. Delaware looking at you. Wow. And yeah, it's like Luddites. It's a pain. It's a pain is what it is. Someone's making money off of that system.

That's what's happening. It's, it's a real pain. And then you just really wanna make sure you test the resale liquidity. Mm. Right. If no one else, like, man, this is a great deal 'cause no one else is going for it. Like the

Jessi: main, a red flag. No one else may go for it in the future. That's why I

James: like I like the off market deals 'cause then I am the only one, but it's not necessarily.

Because it's bad 'cause Yeah. Because it's a bad deal. Sure. So again, Oregon obviously it can be fantastic. Mm. I think it's, it's been fantastic for us. Yeah. You just really wanna make sure that you're. Buying intelligently or that you are teaming up with somebody who understands Oregon and all the nuances, which shocker.

If you're looking for someone who could be that person for you you should check us out at furlo.com. That's our website where you can see our investment thesis mm-hmm. And everything that that we are about and what we do. We also offer property management in case you already own the asset and now you're looking for someone to just make sure that it's run efficiently and well.

We can also help out with that part. Mm-hmm. So the question, dear listener for you is how confident are you that a deal that you might be eyeing would still pencil out after looking at these three filters? Mm. So for the last deal that you looked at, that's what I would like. Just walk through. Yeah.

What did those three things look like for me? Hmm. And if it's a good deal, awesome. Cool. You should go for it. And if you would like to partner with us again, check us out. And we'd love to have a conversation with you and learn more about your goals and what you're going for.

Jessi: There you go.

James: So with that, thanks for listening.

Have a great day.