Renting in Portland – Why are the rents so damn high?

Renting in Portland

One of the big problems people are complaining about right now are the cost of renting in the Portland Oregon Area. Portland has been on a huge number of “best of lists,” the climate is mild year round, and let’s face it, the nature nearby is awesome. Economically Portland is also growing as major tech companies move operations from the Bay Area, or local startups start hitting the big time.

All of this is leading to historically low vacancy rates in Portland’s rental market! The last time we saw vacancy rates this low, was soon after the second wagon train on the Oregon trail reached it’s destination.

Why are the rents so damn high?

Rent is too damn high
Jimmy McMillan of the The Rent is Too Damn High Party

So lets examine this in detail by “purchasing” a new property and working out the numbers. Currently, 4149 NE 82ND AVE is on the market for $1,095,000. It has 13 units, 12 of which are 2 bed, 1 bath. The last unit is 1 bed, 1 bath and is probably the property manager’s unit. For sake of argument, lets assume we are renting this one out too.

Since this is commercial real estate you have to have 20% down to purchase. That is $219k, leaving us to finance $860089. Commercial real estate comes in at about a point higher then residential so let us assume at today’s rates an optimistically low 5.25% interest for a 30 year loan. The reality is that it may be higher and for a shorter loan time.

That comes out to monthly payments of $5873.49. But we don’t have insurance or taxes in that. I’m going to ball park about $12000/year in insurance because it is a nice round number, but it is probably on the low side. The listing says that taxes are $14624.29 a year.

So with these two costs the owner’s monthly debt is now $8292.18 a month. Divided by 13 units, rent is $637.86. Sounds great doesn’t it?

Wait. I forgot management fees that typically run about 8% a month per a unit, assuming we don’t have onsite management who lives in that small unit for free. So we are now at $688.88/month.

But that totally ignores other factors. A rule of thumb is to have 4 months operating costs on hand. That is $33168.72 total, and lets generously say we’ll save that over a year. That is an additional $212.62/month bringing our rent to $901.51 a month.

Now, we still have another factor, the original $219k down. Since this is an investment property we need to recoup this cost. Typically we want these to be paid in 5-8 years, but lets assume ten years. That comes out to $140.38 per an apartment per a month. So our monthly is now $1041.89 per an apartment.

Another cost we haven’t thought about is maintenance. It costs about $500 to rehab an apartment for the next tenant. New paint, patch holes in wall, cleaning, etc. We also have about $200 in legal and advertising fees to rent an apartment out. That is comes to another $58.33 a month bringing us to $1100.22 a month assuming we are doing 12 month leases.

I happen to know that this property has been on the market for some time though, so I can safely surmise that in this market it must have a large number of problems that will add at least another 20% to the purchase cost. Otherwise it would have been purchased months ago.These are typically roof and foundation issues. A roof on a building that size is going to cost about $30k. Foundation issues can be $20k to $100k depending on the issues. We probably also need major renovations in each unit which typically come in at about $8k per a unit. Those include new carpet, appliances, and basic kitchen/bathroom remodeling. I would not be surprised to find it also needs major electrical and plumbing. Lets just say renovations to this property is going to cost $200k total which needs to come out of pocket up front or be financed.

That brings our original price back up to the $1million dollar range and is going to add another $93 month per a unit over 30 years. So our total is now $1193/month, per a unit just to break even on all the costs. Don’t forget that we are putting $33168.72 per year into our emergency fund. Lets assume we only spend about half of it for emergency, basic maintenance and to cover months without tenants. We could probably drop rents $106.31 per a unit after the second year to account for this. Either way, under this scenario we are not making money until year 11 of ownership.

Now, that all being said there are landlords who are skimping on maintenance and gouging on fees and rent. We could also probably talk the price down $100k or so but that is only going to change the monthly cost per a unit by $50 or so. Interestingly, estimates the rent on this property to be $1191 per a month so I’m pretty much in the ballpark.

Some of Portland’s well known bike thieves

One of Portlands biggest downsides lately has been the sheer number of bike thieves. Bikes have been stolen from racks all over town, from locked garages, “secured” spaces in apartment buildings and office buildings and directly off porches. Bike thieves have even graduated from cable clips to using portable battery powered angle grinders to cut through heavy duty U-Locks.

This has been a very lucrative practice for a few years now because a lot of people don’t write down the serial numbers of their bikes to get them back if they are recovered. News articles around the internet talk of people having to bypass the police, or setup their own sting with the cooperation of the police just to get their bicycles back. And the Stolen Bike Listing has helped reunite quite a few riders with their bicycles.

In addition to that, many of these bike chop shops run openly at the Eastbank Esplanade and the Springwater Trail. Luckily concerned citizens have finally gotten the police and other groups to start cracking down on bike thieves.

Below are the mugshots of 13 of Portland’s most well known bike thieves. Everyone of these people have been charged by the Portland Police for multiple counts of bike theft (note the multiple mugshots under most of them from repeated bookings.) If you see one of these people hanging out suspiciously near a bike rack, please call the Police immediately.

Portland’s Freeway Names, Interstate Highway

Portland’s Freeway Names, Interstate Highway

Back to War Veterans Memorial Freeway

Before I-5 was built through Portland, and opened to traffic on December 2, 1964,Interstate Avenue was “the” main Freeway through Portland as part of both the Pacific Highway Route, and the Highway 99W route. This road connected Portland and Vancouver Washington, via the newly built Interstate Bridge over the Columbia River. This bridge is now the east bridge of the I-5 Columbia River Crossing. Future plans will likely remove or replace both existing bridges with a new modern crossing.

Interstate was renamed by then Portland Mayor George L. Baker in 1916 to commemorate the opening of the bridge across the river. From 1909 to 1916, portions of Patton (now Massachusetts) and Maryland Avenue were condemned and repaved to form Interstate which at that time ran through empty land and were essentially dirt roads.

In 1928, Interstate was extended south over the bluff, (Kaiser hospital is at the top of the bluff now,) Delay and Larabee streets were renamed and connected to Interstate.

As the car became more and more a fixture of American Culture, Interstate shifted to serve the need of the driver directly. Gas Stations, Dining and Lodging in the form of Auto Camps popped up along the street. As a designated part of West Side Pacific Highway #3 it became a popular drive for the long distance traveler.

1939 saw a huge change though, as the street was lit with street lights, causing many people to gush about it’s beauty. After WWII Neon lights were added, among these are some of Portland’s most iconic signs such as the Alibi and the Palms Hotel. As part of the plan for the Interstate Urban Renewal Zone, these neon signs are considered public art and are celebrated as such.

May 1, 2004 saw the hugest change to Interstate in decades. The Yellow Line of Trimet’s MAX was opened to the public. The above mentioned Urban Renewal Zone had to be created to allow the light rail train to be built, but doing so also spurned development along the street.

In 2007 a movement started to push to rename Interstate to Caesar Chavez Avenue, but was scrapped because Interstate was already a historic name. According to City of Portland City Code, existing names can not be renamed if the original name is of historical significance. This was eventually dropped in favor of renaming 39th to honor Chavez.

Portland’s Freeway Names, War Veterans Freeway

War Veterans Freeway (I-205):–Washington)

Back to Minnesota Freeway

I-205, or “East Portland Freeway,” now officially named the “War Veterans Memorial Freeway” is Portland’s most controversial highway. The “Interstate 50th Anniversary” project has a really good write up of it’s history.

“This 26.6-mile-long route, which meets I-5 at Tualatin south of Portland, and then continues east through West Linn and Oregon City before heading north, was one of themost delayed and controversial of Oregon’s interstate segments. It was, perhaps not coincidently, one of the first of Oregon’s highways to follow successfully the requirementsof the National Environmental Policy Act of 1969 (NEPA). NEPA required that “…roadprojects using federal funds must have an Environmental Impact Statement [EIS] detailing the effects of the proposed work,” a requirement that would have major impacts on Oregon’s interstate program. I-205 was the last of the proposed I-5 connecting loops actually to be constructed, although its final form was not as originally planned. The first contract for construction of any portion of Oregon Highway No. 64, the East Portland Freeway, as I-205 was called, was awarded on Jan. 11, 1968, for the Willamette River Bridge at West Linn. It opened to traffic on May 28, 1970. While some controversy arose during the construction of the road from I-5 east to West Linn and Oregon City, much of the 17.9 miles of this portion, perhaps among the most scenic segments of the interstate in any of Oregon’s urban areas, was completed by mid-1974. As I-205 pushed north to Multnomah County, however, the project ran into new and considerably more virulent controversy than had previously been the case. In 1973, groups opposed to the project filed petitions with Environmental Quality Commission. These environmental concerns, along with new doubts about the social value of freeways in general, put I-205 in the spotlight.

In July 1974, despite the fact that construction was already underway, the Multnomah County Board of Commissioners formally retracted its earlier approval of the I-205 route and requested that the Oregon Department of Transportation redesign a nine-mile section of the freeway. ODOT wanted to stay with the proposed eight-lane design; Multnomah County wanted no more than four lanes. The Clackamas County Board of Commissioners, who now enjoyed a virtually completed I-205 throughout the county, supported ODOT, as did the West Linn City Council. By the end of 1974, Glenn Jackson, Oregon Transportation Commission Chair, and the Multnomah County Commissioners were working on a compromise plan. Finally, in July 1975, ODOT and the local governments reached a tentative consensus that would keep the right-of-way but allow some dedication for bus only lanes while removing or redesigning several of the originally planned interchanges. But that did not end the controversy. In November 1975, the Federal Highway Administration notified the State that it objected to portions of the compromise plan related to types of interchanges and the bus-way design. By December 1975, following changes to the interchanges and redesign of portions of the bus corridor, FHWA withdrew its opposition to a six-lane I-205 freeway with exclusive buslanes, and so removed the major obstacle to construction of the route between Foster Roadand the Columbia River. By 1978-1979, construction on the remaining 9.2-mile section of I-205 was underway, with the agreement that the bus transit portion would be designed but not constructed concurrently with the route. The Glenn L. Jackson Bridge, which spans the Columbia River and connects I-205 between Oregon and Washington, was formally opened in December 1982. Interstate 205, as a complete interstate link between Tualatin and Vancouver, Wash., was completed in 1983. The controversy surrounding I-205, which questioned the focus on auto transit as opposed to bus systems or other forms of mass transit, represented a turning of the tide for freeway construction in Oregon. It was the last spur or connecting loop of I-5 to be constructed in the state.”

It is interesting to note that since this original article was written, those bus-ways have been taken over by Light Rail.

Next, Interstate Highway

Portland’s Freeway Names, Minnesota Freeway

Portland’s Freeway Names, Minnesota Freeway (now I-5):

Back to Banfield Freeway

The Freeway now known as I-5 was officially known as the EastBank Freeway, but quickly garnered the nickname of Minnesota Freeway.

Building the Eastbank Freeway
Building the Eastbank Freeway

As you can see, the freeway project took up the entire block where Minnesota Street used to be, and thus it’s nick name came into more common use. As far as I can tell, outside of official documentation from the City of Portland, Eastbank Freeway was rarely used. But the name “Minnesota Freeway” is still found on the Internet which causes some confusion as it’s not commonly used any more.

Construction started in 1959, and ended up costing $22 million. The new freeway was pretty much rammed through despite citizen’s protests and decimated entire African American Neighborhoods. Outside of the the African American Neighborhoods though, there seemed to be little protest over building the highway. No doubt a bit of racism played heavily into that.

By 1961, the planned road had taken over the 99W name from Pacific Highway. It was opened the morning of December 2, 1964, and businsses along Interstate Highway immediately knew they were done. It also lacked any type of environmental impact studies, or even basic economic studies!

Various documents claim that I-5 legally maintains the Pacific Highway name, but I am not able to officially substantiate that. Nor can I find when the road was officially named to I-5.

Next, War Veterans Freeway