DRG Real Estate Blog

One of the major components of the recent mayoral elections in the cities of St. Paul and Minneapolis was a vote for or against rent control. In this article, I’m going to break down what you need to know about rent control broken down by each city, how it could affect the rental real estate market, and opportunities in the investment space given the vote’s outcome.

First, it’s extremely important to note that TWO votes occurred - one for the city of St. Paul and one for the city of Minneapolis. The outcomes of each are similar - in that the rent control vote “passed” - but the outcomes that we’ll see from this vote are very different. Let’s break this out by city, and then discuss the outcome of the vote, the potential short term effects, and potential opportunities moving forward.

St. Paul Votes in Favor of Rent Control

The vote for rent control was voted in favor on Tuesday, November 2nd. The basic premise of the rent control policy in St. Paul was that landlords will be limited to a 3% increase in rent, year over year, regardless of a change in tenant occupancy. Meaning, if a unit is renting for $1,000/month and that tenant signs on to another twelve month term the maximum allowable rent becomes $1,030 (a 3% increase). Likewise, if that SAME apartment goes vacant and a new tenant elects to occupy the property the maximum allowable rent is still only $1,030/month (a 3% increase for the last occupant). This cap on the increase in allowable rent regardless of a change in occupancy makes St. Paul’s rent control policy is one of the strictest, if not THE strictest, in the nation. Pair that with the lack of exemptions on new builds (typically apartments built after 1980 do not have the same rent control rules across the nation) and you’ve basically ensured that the city of St. Paul receives ZERO new development for many years to come.

All of that being said, this new rent control policy, to my knowledge, does not go into effect until May 1st, 2022.

Short Term Implications

Let’s break down the short term implications of this new policy and potential opportunities in St. Paul moving forward over the next six to twelve months.

The first thing I did on Tuesday morning was call a handful of apartment owners that own apartments in St. Paul and I had one question, “How are you going to move forward from here?” The resounding answer was, “We have a tough decision to make…”. Because the policy doesn’t go into effect until May 1st these apartment owners are now in a predicament - do they bring the units that are on a month to month lease up to market value OR do they keep them as is and run the risk of NEVER being able to bring their units up to market value, regardless of a sale or not?

Although the news and media outlets may cast a different light, many of these mom and pop apartment owners are great people. They’ve owned their brick brownstone apartment building on Grand or Summit Avenue for decades - and as such, they have tenants that have been with them for five, ten, or even twenty years! These residents become a part of their family. They know where they work, the names of their kids (or grandkids!), and their favorite local restaurants. These same apartment owners will more often than not elect to keep rents low for these residents who have been with them for years - citing a reduced vacancy rate as being better than increasing rents and potentially having a great resident who has been with them for years move out.

But now, with the institution of St. Paul’s rent control policy that’ll go into effect on May 1st these same owners have a tough decision to make. Do I increase Johnny’s rent (figurative resident) to $2,000/month, up from $1,000/month? Because they’re thinking, “Well, if I don’t do it now, then I’ll NEVER be able to bring rents back up to market value.”

This puts tenants AND apartment owners in a very challenging position.

As such, I’m of the belief that long-term residents of St. Paul - the same resident’s we’re trying to protect with rent control - as those going to be the MOST affected over the next six months.

Opportunities in St.Paul

I’m not for or against rent control - I move with the market. Whatever the market does, I pivot and capitalize regardless. I’m seeing rent control being passed in St. Paul as an IMMENSE opportunity for apartment buyers.

Over the next six to twelve months (and beyond) there’s going to be a whole host of long-time apartment owners saying, “You know what, I’m done with this… I don’t want to deal with this anymore.” And that’s when and where my buyer clients are going to capitalize.

Can YOU learn to navigate this new rent controlled market of St. Paul?

Can YOU see the silver lining here and still run an effective business?

Can YOU still provide residents with a great living experience?

One thing I know to be true, the successful people in my life that surround me are persistent, resilient, and determined - regardless of what’s going on around them.

This is a time in St. Paul where the bold and determined are going to see an amazing opportunity to build wealth. And it will also be a time for run-down, overworked, and out-dated apartment owners to step away from their properties.

In closing, I’m VERY much excited about the opportunities to BUY property in St. Paul over the coming months/years.

Minneapolis Gives Power to City Council on Rent Control

Let's now pivot the conversation to Minneapolis.

Minneapolis’ vote for rent control also passed BUT this doesn’t mean there’s any incoming policies like the St. Paul counterpart.

The vote in Minneapolis, to my knowledge, has now given the power to Mayor Jacob Frey and the City Council to enact their own version of rent control.

Does this mean that the city of Minneapolis will see its own rent control policy? It’s tough to say. Especially since Mayor Frey has come out against rent control.

That being said, here’s what I see as the short term effects and opportunities of Minneapolis’ vote.

Short Term Implications + Opportunities

I’ve come to learn that real estate can be a very reactionary business. 

If a news outlet reports that the city of Minneapolis is UNSAFE and that it’s no longer fit for residency - people will go running for the hills. Which is exactly what happened last year during the city’s social unrest. (by the way, this has long since changed)

And now, we’ve got a vote for POTENTIALLY instituting rent control in the city - and you know what? I bet people are going to run for the hills.

I see the short term effects of this vote being an opportunity for potential buyers, like above with the case of St. Paul, for people looking to purchase apartment buildings.

Many of these brick brownstones, early 1900’s construction, class c apartments are owned by guys and gals in their 50s, 60s, and 70s. These are owners that watch the nightly news. These owners are immensely concerned about the safety of the city. And these are owners that are now going to be freaked out by the talks of instituting rent control.

I’m sorry if this is a contrarian belief, but I just don’t see rent control - EVEN IF IT GETS INSTITUTED - as being a bad thing. The University of Minnesota responded to the city of Minneapolis’ request for more information on the matter by highlighting the effects of such a policy - that can be viewed here. 

The webinar doesn’t go into detail on the long-term effects of instituting a rent stabilization program - which I’m of the belief have negative effects on the supply and affordability of the housing market. But it does fairly accurately show the immediate impact to both apartment owners and residents - and what it showed was that even with the strictest of policies enacted would NOT affect an overwhelming majority of apartment owners.

With this information in mind, and the negative sentiment long-time apartment owners are currently feeling, I’m of the belief over the next six to twelve months we’re going to see a potential buying spree in the city of Minneapolis. If you want to get in the game, now’s the time!

In closing out this discussion, I’ll leave you with this…

If you’re persistent, determined, and can see the forest through the trees, then NOW is the time to consider multi-family investing. If you’re scared, skittish, and reactionary to the market, then now is the time to get out (and sell your apartment building to Emily and I!). I’m of the belief that the opportunities that are going to be presented over the next year are simply too good to not get in the game - or level up if you’re already in the game.

Oh, and we didn’t even chat about inflation and why now it’s probably more important than ever to be investing your capital as opposed to leaving it in the bank where it’s losing its value… maybe we’ll touch on that in another post soon…

Happy investing,

Paul Begich