As low mortgage rates continue across the United States, many investors wonder if now is the time to invest in a real estate venture. Rental properties are a great source of passive income while contributing to long-term wealth. Also, thanks to technology and professional property management companies, owners do not need to reside just down the street from their rental to be successful. In fact, property owners can have rental units anywhere and in any state! That said, not every state is the best choice. So, continue reading below as we discover the top landlord-friendly states, what makes them the best option, and where to avoid.
6 Key Traits of Landlord Friendly States
In any state, landlords must abide by local laws and regulations. That said, some states have more favorable landlord regulations than others. From taxes to compliance red tape, everything can eat away at a landlord’s annual profits. Therefore, consider these factors below when evaluating which landlord-friendly states are right for you!
- Property Taxes and Insurance Rates
- Registration, Compliance, and Licenses
- Landlord-Tenant Rights
- Eviction Processes
- Local Competition
- New Post-Pandemic Regulation
Property Taxes and Insurance Rates
Local municipalities have their own tax codes vital to any property owner, but especially landlords looking to make a profit. Therefore, take time to research tax history on any potential investment property listing you come across. As home prices and competition climb, factoring in these added fees may make all the difference to a landlord’s bottom line.
Registration, Compliance, and Licenses
Many states require owners to obtain special licenses, registration, or compliance items to list their property for rent. While this is generally a straightforward process, it does cost money. Therefore, this can add to an already expensive endeavor of purchasing and preparing a property for rent. So, seek out landlord-friendly states that have less or less expensive requirements imposed upon landlords.
In any state, both landlords and tenants have rights. That said, choosing landlord-friendly states means more of those laws will favor the property owner or at least offer balance. To run a successful rental property business, it is crucial to avoid states with landlord-tenant laws stacked in the tenant’s favor.
No one wants to think about eviction, but the reality is that it happens to even the most prepared landlords. So, when problems arise, owners want to know they get the tenant removed as soon as possible. Keep in mind that it is much easier to evict tenants in some states than in others. Thus, researching local eviction processes helps owners gain insight into the state’s tolerance level for the problem or non-paying tenants.
Rule number one of real estate, either buying, renting, or investing, is the location! However, especially in landlord-friendly states and cities, owners may face stiff competition. Therefore, investors need to research the local rental market and consider new construction and rental rate trends to determine which location is best.
New Post-Pandemic Regulation
The rental industry has not escaped the aftermath of the COVID-19 pandemic. During the middle and end of 2020, the federal government, along with many states, imposed rent freezes and eviction moratoriums on landlords. While most of the country bounces back, some states have already enacted laws to extend rent freezes and tenant protection for up to a year after the pandemic is over. So, potential investors should examine any new laws and research bills in the works to determine if they are likely to hurt well-intentioned landlords.
10 Landlord Friendly States for Rental Property Investment
With so many states to choose from, does it matter where landlords choose to invest? Yes! As a matter of fact, each state has inherent advantages or disadvantages for landlords. So, in this section, we will highlight a few landlord-friendly states to consider for your next big investment.
Alabama enjoys some of the lowest tax rates in the country. Additionally, rental licenses are not currently required, which helps save money on compliance matters. However, the advantages of investing in landlord-friendly states such as Alabama do not stop there. Here, landlords can legally raise the rent at any time as long as they provide 30 days written notice. Also, eviction proceedings and laws lean in support of the owner. When a tenant does not pay rent, landlords can issue a 7-day notice. That said, a breach of the rental agreement only requires landlords to provide 14-day written notice. As another bonus, Alabama laws do not regulate late rent fees. So, landlords are free to set their own prices for late rent fees.
The Grand Canyon State has a lot to offer landlords and potential investors. Along with raising rent with a 30-day notice, landlords will also find eviction laws quite favorable. Evictions for non-payment require q 5-day written notice while breach of lease is a mere 10-days. Arizona is one of the top landlord-friendly states, thanks to its low property tax rates. So, if you love sunshine and real estate investing, check out Arizona!
Unfortunately, many states protect tenants at the expense of the property owner. However, in landlord-friendly states like Colorado, the chips are stacked in the owner’s favor. The most significant advantage to rental home investment in Colorado is the favorable eviction laws. Every landlord knows that time is money and when a tenant is not paying rent, removing them is a top priority. So, instead of dragging the process out like many other states, compliance demand notices are limited to 72 hours. This notice gives the tenant the option to pay and stay or leave the premises. After the 72 hours expires and the tenant has not yet paid, they have just 48 hours to vacate the home. Therefore, landlord-friendly states such as Colorado make protecting your investment just a little bit easier.
Despite Florida having a high concentration of renters, state laws have not kept up, which leaves landlords in an advantageous spot. For example, no limits are set on security deposits, and property owners have 60 days after move out to return funds to the tenant or withhold for damages. Furthermore, evictions begin with the landlord issuing a 3-day notice to pay or quit. If the tenant does not comply, landlords may then seek formal eviction through the courts. The process is similar for lease violations that only require a 7-day notice. Additionally, even as people flock to the Sunshine State seeking solace on the sunny beaches, property taxes have remained reasonable.
Georgia landlords benefit from lenient eviction laws that allow owners to address non-payment or lease violation issues quickly. After a 7-day notice period, owners can proceed with eviction meaning landlords regain possession of their home much faster than in other less landlord-friendly states. Georgia is currently a hotspot for investors thanks to low tax rates and no limits on either security deposits or late fee charges.
Boasting reasonable tax rates, modest home prices, and landlord-friendly laws, Kentucky is a prime choice for investors. In this state, landlords can withhold deposits for unpaid rent, damages, or unpaid utility bills, plus they have between 30 to 60 days to return the deposit after move out. Eviction laws are also lenient, which helps property owners regain control of their unit without going for months with no rent coming in.
For landlords looking to set their own rental and security deposit rates without restriction, Illinois may be the state for you. Furthermore, property owners can take ample time to inspect the home after a move out with a full 45 days before the deposit needs to be returned. Also, like many other states on our list, Illinois is eviction friendly, requiring only a 10-day notice before filing in court.
Thanks to relatively low home prices and healthy rental rates, Indiana is a hot spot for real estate investors. Besides price, owners can take advantage of the state’s low tax rates, a no-tolerance policy for non-paying tenants, and landlord-friendly security deposit regulations. In fact, Indiana gives landlords a full 45 days to return the deposit after move out. Thus, giving the owner ample time to inspect the property to determine any tenant damages thoroughly. Additionally, if an owner needs to evict a tenant for non-payment or breach of lease, only a 10-day notice is required by law. So, if tenants do not comply with the notice, landlords can move to the next step of filing for a court-ordered eviction.
States as large as Pennsylvania offer various advantages for landlords, including an average rental rate of around $1300. Even though major metro areas such as Philadelphia, Harrisburg, and Pittsburg have their own landlord-tenant laws, this is one of the best landlord-friendly states. There is little tolerance for tenants who do not pay rent or violate any of the lease terms. So, property owners can proceed with eviction through the courts after a 10-day written notice to vacate is presented to the tenant.
Although taxes hover a bit higher than in other areas, landlord-tenant law is surprisingly friendly in Texas. The Lone Star State has many attractive advantages for landlords, including a system that seeks to preserve owner rights. Therefore, landlords with a legal and well-drafted rental agreement will have an easier time handling lease violations, evictions, non-payment, and complaints. In fact, landlords looking to evict a tenant for non-payment only need to issue a 3-day notice! Additionally, Texas law is lenient on how much landlords may charge as a deposit and whether repairs need to be completed when a tenant is behind on rent. So, Texas is one of the top landlord-friendly states in the country.
What are the Least Landlord Friendly States?
- California – Whether it is rent-controlled cities or endless red tape to cut through, being a landlord in the Golden State is no simple feat. Therefore, landlords must plan for added compliance fees and understand the laws restricting security deposit amounts and how to evict troublesome tenants.
- New Jersey – The Garden State is no sanctuary for landlords. Actually, New Jersey has many laws in place that work against landlords’ needs, including regional rent control. Also, be aware of the Rent Security Deposit Act and the Landlord Registration Act, which determine how landlords can operate their rental business.
- New York – The Big Apple is expensive, and the rest of the state makes it hard for landlords to keep up with the many rental laws. So, navigating the differing rules governing every type of rental plus tenant-friendly laws means surviving as a landlord here is a full-time job!
- Oregon – Landlords beware of the rent control laws that plague the rental industry in Oregon. In fact, many regulations here side with tenants over landlords, which limit the amount of control owners actually have over their unit once occupied. For example, rent increases are limited to no more than 7% per year, and an owner’s ability to evict at will for tenants who have been there at least a year is challenging, if not impossible. Failing to comply could see landlords owing the tenants up to three months’ rent in damages.
The Best Way to Manage Rentals in Any State
Whether you invest in landlord-friendly states or try your luck in more restrictive locations, every landlord needs help at some point. Relying on a professional property management company‘s knowledge and experience can take your venture to the next level.
The experts at Bay Property Management Group help owners navigate local laws, ensure property compliance, and adhere to landlord-tenant rules to protect them from disputes. Our user-friendly owner portals use the latest technology so that owners can check in on their investment performance from anywhere at any time. Give us a call today to learn more about the peace of mind full-service property management can offer!