Operating as a landlord is one of the best ways to pursue a career in real estate. For that matter, few exit strategies have proven more capable of generating long-term profits and facilitating financial independence. It is worth noting, however, that today’s most successful rental property owners are those who know where to invest. The market in which a rental property is located will play an instrumental role in its success or failure. Therefore, landlords must pay special considerations to where they buy their homes. Landlord friendly states, for example, warrant a great deal of consideration.
What Factors Make States Landlord Friendly?
From tenant-landlord laws to taxes and insurance rates, landlords in every state are expected to abide by countless rules and regulations. However, it is worth noting that many of the regulations put in place to maintain order are extremely localized. Outside of a few nationally recognized exceptions, many of the laws governing landlord and tenant relations change from state to state. As a result, several existing factors make some states more conducive to the prospect of owning rental properties than others.
While the factors investors find most attractive are essentially subjective, there are approximately six that are universally found in today’s most landlord-friendly states:
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Eviction Process: Evictions are perhaps the most feared aspect of rental property investing, which is why many landlords covet states which ease the process. Subsequently, some states make it a lot easier to evict bad tenants than others. While some tenant-friendly states make it nearly impossible, others tend to side with landlords by making the eviction process as quick and painless as possible, exercising a low tolerance for tenants who breach their leases.
Landlord & Tenant Rights: Both tenants and landlords are awarded rights in each state, but the degree to which those rights are carried out will vary significantly across state lines. Sometimes, tenant rights are so extreme that they may actually jeopardize the landlord’s financial standing. On the other hand, several states have developed a more balanced reputation that favors each party. As a landlord, it may be in your best interest to invest in states whose laws don’t work against your right to earn a living.
Rent Control: As its name suggests, rent control is often implemented to control the cost of rent in certain areas. Some states don’t allow landlords to increase rents despite inflation and yearly increases in taxes and utilities. The idea is to prevent ill-intentioned landlords from price gouging tenants, but the laws may hurt well-intentioned landlords trying to earn a living. Therefore, investors looking to become landlords should pay special considerations to any areas under the rent control umbrella.
Registration & Licenses: There are a number of states that require landlords to acquire both registrations and licenses to actively rent their real estate assets to tenants. The licenses and regulations are, not surprisingly, to prepare homeowners for the prospects of becoming a landlord. That said, many of these credentials cost money, and can be more of a burden to some landlords, so it may be in an investor’s best interest to lease in a landlord-friendly state that doesn’t require them.
Tax & Insurance Rates: Property taxes, and sometimes even insurance rates, are established by local municipalities. As a result, prospective landlords will want to consider the property taxes imposed on their own assets in the event they rent them out. Consequently, some states have much higher taxes than others, so it may literally pay to look at local taxes before investing in a rental property.
Competition: The golden rule of real estate investing still reigns true: location, location, location. The location in which an investor chooses to buy a rental property is more important than ever, in fact. Due largely to the amount of competition in each market, investors will want to choose their location wisely. That said, some states inherently have more competition than others.
Regulations After COVID-19: The COVID-19 pandemic brought about many changes to the real estate industry, including federal and state laws regulating rental properties. These policies mandated eviction moratoriums and rent freezes in certain localities. Many states have begun relaxing the laws set during 2020, and allowing landlords to resume regular operations.
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The Best States For Landlords In 2022 & 2023
There are a great deal of states that have developed a reputation for helping landlords in their investment endeavors, but some states boast inherent advantages over others. Three states, in particular, seem to award landlords with more benefits than just about everywhere else. To that end, some of the most landlord-friendly states in the upcoming year are as follows:
Out of all the states landlords have found to be the most conducive to investing efforts, none may be more apparent than Texas. As it turns out, Texas offers a wide variety of landlord advantages. Still, the single most important reason has to do with the state’s inclination to take lease violations very seriously. Due largely to Texas’ propensity to favor landlords in lease violations, it’s fairly easy to see why rental property owners are enamored with the prospect of buying assets in the Lone Star State.
In fact, Texas tends to emphasize the preservation of landlords’ rights in the event lease conditions are broken. For that matter, few places facilitate easier relief, compensation, or repossession of the rental unit if the lease terms are violated. That means landlords with well-crafted lease agreements can enjoy more “peace of mind” than their counterparts in just about every other state. If that wasn’t enough, Texas boasts several affordable markets where demand is increasing, and rental asking prices are still desirable.
One of the most landlord-friendly attributes of Indiana is the state’s price-to-rent ratio. With a median home value of $145,300, which is well below the national average, the median rent in Indiana is about $1,100. However, it is worth noting that the profit potential isn’t the only reason landlords find Indiana to be such a great place to own a rental property. In addition to attractive rental rates, the rules that govern security deposits lean heavily in favor of landlords. Laws in the state of Indiana allow landlords to retain security deposits for 45 days. As a result, landlords may take an appropriate amount of time to determine whether they need to use the deposit on any damages caused by tenants. Other states don’t give the landlord enough time to evaluate the property, potentially leading to them giving back the deposit when some of it should have been kept.
Colorado is unique in that it is one of the few states where local law enforcement takes the landlord’s side. Whereas many states protect the tenants’ rights at the expense of the landlord, Colorado does the opposite. As a result, the process of evicting a tenant for unpaid rent is made simpler. Any demand for compliance notices initiated by the landlord is limited to 72 hours. Tenants are given two options at that time: pay their landlords or leave the property. After the demand for compliance expires, tenants are given a mere 48 hours to get out of the home. Other states, however, may allow the eviction process to drag on for far too long, effectively ruining any profit potential for the owner.
Many of the state laws in Alabama make it an attractive state for landlords. Property tax rates are the second-lowest in the country at just 0.42%, making real estate investing options attractive. Landlords can raise the rent as long as they provide a 30-day notice. Rental laws prevent tenants from withholding rent if a landlord does not make repairs to the property. Also, landlords are favored in the eviction process in Alabama. If a tenant breaches the rental agreement, landlords can give a 14-day notice to end the lease. If tenants do not pay the rent, the landlord can give a 7-day notice of eviction. Alabama state laws do not cover late rent fees, meaning that landlords have the freedom to set their own prices for late rent fees.
Similar to Alabama, landlords can raise the rent on their property with a 30-day notice. Landlords in Arizona are favored in the eviction process. If a tenant fails to pay rent or fails to maintain the property, the landlord can give a 5-day notice to rectify the situation. If a tenant breaches the rental agreement, the landlord can give a 10-day notice. If the issue is not rectified, the landlord can then file an eviction lawsuit. In more cases of more serious violations, such as vomiting a crime on the property, a landlord can give an unconditional quit notice to vacate the property within 10 days.
Although Florida has one of the highest population of renters in the US, the laws in this state lack detail, creating favorable circumstances for landlords and the freedom to set many of their own rental guidelines. For instance, as long as it is returned within 60 days after a tenant vacates the property, there is no limit to the amount a landlord can charge for a security deposit. Rent control is prohibited in Florida, and landlords can set their own price for late rent fees. If a tenant is destroying the property, landlords can give a 7-day notice to vacate before proceeding with eviction lawsuits.
Landlords in Illinois can also set their own prices for a security deposit for their rental properties. The security must be returned within 45 days unless the tenant owes money in rent or has caused damage to the property. Late fees are limited to $20 or 20% of the rent. If a tenant breaks the lease terms, landlords can give a 10-day notice to vacate the property before proceeding with the eviction process.
The eviction laws in Pennsylvania are also attractive to landlords in Pennsylvania. If the tenant fails to pay rent or violates the lease terms, the landlord can issue a 10-day notice to pay or move out. After 10 days, the landlord can begin the legal eviction process. The average rental income in this state is around $1,300, which is an attractive cash flow for rental owners. Cities such as Philadelphia and Pittsburgh have different landlord-tenant laws than the state, so be sure to research these regulations when investing in Pennsylvania.
Becoming a landlord in Ohio comes with the potential for tax write-offs such as mortgage appreciation and improvements made to the property. Also, the eviction process favors the landlord in this state. If a tenant fails to pay rent, the tenant must move out of the property within three days after receiving notice from the landlord.
Georgia is another state with informal eviction laws, allowing landlords to quickly resolve issues with unpaid rent. After landlords issue an eviction notice, tenants have seven days (unless otherwise specified) to pay rent. If they do not, landlords can begin court proceedings to remove tenants if necessary. There are also no limits on late rental fees or security deposits in Georgia, thus providing landlords with more flexibility to establish these numbers based on the property.
Rental laws in Kentucky fail to specify limits on late fees or security deposits. Landlords can use the security deposit funds for any damage done to the unit, unpaid rent, or other costs incurred by the tenants. Kentucky also has extremely lenient eviction laws. Landlords can begin the eviction process with a seven-day notice to tenants. For any other lease violations, landlords only need to provide a 15-day notice to begin the eviction process (if the tenant does not fix the issue).
Michigan allows landlords to deduct damages from a tenants’ security deposit, and allows them to hold onto the deposit for up to a month after tenants vacate a unit. Michigan is also known for looser laws on rental rates and fees charged by landlords. Note that Michigan does have a slightly higher property tax rate than the national average. However, the protections built in for landlords can be beneficial for property owners.
North Carolina is a rapidly growing market, largely due to the low cost of living and tax rates. For landlords, there are numerous policies that can help when managing properties. First, in cases of a lease violation landlords do not have notice requirements before initiating an eviction. However, in cases where rent is not paid, landlords must give a ten-day notice before starting the eviction process. Landlords are not obligated to renew the lease or rental agreement.
While great rental markets exist in every state, there’s no doubt that some states reward investors who choose to set up shop in certain locations. Make no mistake, certain states are better to invest in than others. For example, landlord-friendly states tend to place the rights of homeowners ahead of their tenants, which bodes incredibly well for any rental property portfolio. These states tend to favor landlords in the eviction process and offer low property taxes. Combined with great cash flow, there’s no reason landlord friendly states can’t simultaneously put an asset over the top while mitigating risk. Therefore, pay special considerations to the rules in regulations in your particular state.
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