One of the biggest decisions that landlords make is where to invest in rental property. Along with researching the local markets, it is important to realize that some states tend to favor landlords. Historically, Northern states benefit renters while Southern states tend to side with property owners. That said, owners must consider several factors such as rental rates, property taxes, regulations, and legislation. Continue reading below as we discover some of the worst states for landlords and why investors may want to steer clear.
Factors that Determine the Worst States for Landlords
Real estate has long been thought of as a worthwhile long-term investment for those looking to generate income through rent or appreciation. However, figuring out the worst states for landlords begins by examining which factors matter to the overall success of owning rental property in a given location. Let’s review these factors below –
- Average Rental Rates – The goal of investing in rental property is to generate positive cash flow. Therefore, the median rent in the area is essential to a landlord’s decision. While rent can vary greatly across states and even neighborhood to neighborhood, average rental rates are still vital in determining the worst states for landlords.
- Landlord-Tenant Law and Regulations – State and local laws govern many aspects of the landlord-tenant relationship. For example, owners should research laws about the security deposit, late fees, lease termination, eviction, right of access, and permitted use of a property.
- Property Tax Rates – Every property owner must pay property tax; however, some locations are more advantageous than others. Therefore, buying somewhere where property taxes are low and historically do not show large increases in tax rates will equal more money in your pocket. So, owners must be aware of the local municipality and possible city taxes depending on the home’s location.
- Appreciation Rates and Property Value – Eventually, you may want to sell your rental property, and looking in areas with positive appreciation rates is key to getting the most of your investment. Generally, appreciation rates will vary greatly within each state but examining the average does help narrow down your wider search.
The Top Worst States for Landlords
As we discussed above, some of the worst states for landlords will combine unfavorable factors. However, many just have important factors landlords should consider. Continue reading below as we review some of the overall worst states for landlords and a few others with unfavorable conditions that may sway your decision.
Top 5 Worst States for Landlords Overall
- California – With a median statewide home price of $800,000 with many areas skyrocketing higher, price alone keeps some investors away. Additionally, California’s Tenant Protection Act enacted in 2019 created both statewide rent control and eviction laws that affect most residential properties. So, not great news for landlords.
- Vermont – Average home prices here hover around $300,000, which is not bad. However, property taxes are the ninth highest in the nation. That, combined with strict security deposit laws and the ability for tenants to withhold rent until landlords make essential repairs, means Vermont is one of the worst states for landlords.
- Nebraska – Nebraska ranks fourth in the country for property tax rates despite having an affordable average home price of around $200,000. That said, rent here only averages $850 to $1100 per month, and owners have a mere 14 days in which to return the security deposit. Additionally, this state restricts actions landlords can take against lease violations, making them wait until 30 days after the notice is sent to terminate.
- Rhode Island – Tenants in Rhode Island may repair and deduct or withhold rent until essential repairs are complete. Furthermore, tenants have up to 20 days to cure a lease violation complaint before a landlord can terminate the agreement. Also, property taxes are high enough to make Rhode Island one of the worst states for landlords.
- Washington State – Across the board, Washington’s average rent is around $1350, which is higher than the national average of $1097 in 2019. However, that is where the good news ends for landlords. Washington requires owners to make significant informational disclosures that can slow the process of signing new tenants. In addition, city and local ordinances can significantly stifle landlord freedom relating to evicting a tenant without cause.
The Other States Not Making Things Easy on Landlords
- New York – It is no surprise that New York makes the list of worst states for landlords. From the anxiety-inducing prices in the major cities to the myriad of rental laws, being a landlord here requires thick skin and deep pockets. Statewide the average property tax rate is 1.69%, but like home prices, it can vary widely by location. In addition, landlords have only 14 days to return all or a portion of the security deposit.
- Massachusetts – According to Zillow, Massachusetts has a median home value of $497,986. That said, property taxes are also high, with an average annual property tax payment of $4,899. These expensive states where taxes and prices are high will ultimately cut into a landlord’s end-of-year profits. Therefore, they may not be worth the trouble or expense.
States with Rent Control Laws
According to the U.S. Department of Housing and Urban Development, roughly 10% of rental households pay more than 50% of their annual income just to keep a roof over their heads. That said, the average American spends more than 30% of their income on housing costs.
The term rent control refers to legislation aimed at limiting rental rates in a city or state. They create a ceiling cap on maximum rent and limit the amount of increase a landlord can implement. That said, these laws will vary from location to location. Check out the states that currently have some sort of rent control laws in place below –
- California – Statewide, along with 18 city-specific rent control caps.
- Maryland – Certain areas have rent control laws in place, although nothing is statewide.
- New Jersey – No statewide legislation, but over 90 cities and municipalities have rent control laws.
- New York – Statewide, county-specific, and city-specific guidelines in place for rent control and increases.
- Oregon – Statewide rent control legislation.
- Washington DC – Certain criteria must be met for rent control to apply in the nation’s capital.
How to Maximize Your Rental Investment
When it comes to investing in real estate, location is the number one rule. For landlords, researching applicable laws and regulations is just as important as an area’s rental rates and local amenities. You will quickly realize the key differences between landlord-friendly locations and some of the worst states for landlords during your search. So, steer clear of anywhere that will only cause headaches and cost profits.
Once you have found the ideal property, seeking out qualified property managers in your area is the next logical step. Bay Property Management Group is the area’s leading full-service rental experts. Our team helps owners navigate changing laws while keeping their property compliant and as profitable as it can be. Give us a call today to see what BMG can do for you.