Investing in rental properties is great to grow wealth and personal worth, but it's also essential to consider the state. When looking for a place to invest in real estate, the first question is whether the area has any factors that make owning a rental property less than ideal.
Real estate investing in a landlord-friendly state will save you time and maximize growth. But how can you tell which states are good destinations for landlords?
What Makes a State “Landlord-Friendly”?
Several factors must be analyzed if you are looking for landlord-friendly states to provide you with a suitable environment for your investment, including the following:
1. Crime rates: This is a critical factor for investing in rental properties. The safety of yourself and your tenants is very important.
The crime rate in a city or neighborhood affects the value of your property in many ways:
- It reduces its desirability, which affects local demand.
- Crime rates go up and down as well as the real estate market in response to economic cycles.
- People who rent/buy will pay more when they feel safe doing so.
Therefore, it's advisable to research crime rates within particular neighborhoods and surrounding neighborhoods before investing in a rental.
2. The Economy: If the economy is good, there will be good personal income. Your property will have a greater chance of being rented out for a decent amount of time if people’s incomes are healthy. In general, people prefer renting in areas with high employment rates because they have more money to spend. A growing economy offers tenants employment, allowing them to pay their mortgages and enabling landlords to rent out additional properties.
3. Property Taxes: Is it possible for landlords to have an easy time making ends meet while still coping with high property taxes? Property taxes depend largely on which state a landlord is in and how many units they purchased there. The property taxes levied on rental properties are determined by local governments, and landlords pay yearly property taxes, no matter the state.
Landlords will pay greater property taxes if they own a rental home in a state with a high tax rate than if you own the same type and size unit in a state with a low property tax rate.
4. Rent control. Rent control can be defined as a city or locality's direct efforts to keep their current tenants in their homes (and prevent new ones) by setting limits on how much the landlords can raise rent prices or evict them if they try to. Under rent control ordinances, tenants enjoy significant protections against arbitrary eviction and excessive rent increases. However, these protections come at the expense of landlords.
Rent control ordinances generally impose strict rent ceilings, limiting how much a landlord can increase a tenant's rent. In some places, this takes the form of a consumer price index (CPI) cap, as in San Francisco's Rent Stabilization And Arbitration Ordinance. In other jurisdictions, such as New York City, multiple tiers limit rates are implemented for specific tenants or lease terms. These sorts of restrictions hinder landlords' abilities to recoup costs associated with operating their properties.
5. Eviction process: In states with strong tenant eviction laws, it can be difficult for a landlord to remove problem tenants from their rental units. In these cases, if a landlord wants to evict a tenant for various reasons, the chances are high that you'll experience significant delays. They may even need legal assistance before being allowed to proceed with the eviction.
6. The rental market: If there are too many properties available in one area, you might have trouble finding tenants for yours. This is because of the availability of housing. Tenants are more likely to turn down units if there are many available around the area. Many landlords will place ads with enticing value deals believing that lowering the price will encourage tenants to look at their ad first among others placed throughout the community. However, choosing the right state could save you from renting your property at a lower price or waiting forever to find tenants.
7. Landlord license - Some jurisdictions and states require landlords to acquire a license before renting out their property. While some states provide their online forms for landlords to fill out and submit to obtain this license quickly and easily, the process still takes time and additional fees.
Landlord Friendly-States Classification
We've compiled a list of the most landlord-friendly states in the United States based on the above criteria. States earning this rank have an excellent track record for being pro-landlord, including having laws that favor landlords, such as no limits on how much can be charged for security deposits and fair eviction processes.
In addition, they have many other benefits for property owners, such as low property taxes, favorable prices for beginner landlords, a prosperous economy, and more.
1. Colorado
In many states, rent laws seem to favor tenants, but in landlord-friendly states like Colorado, the odds are stacked in favor of the landlord. The property prices are low, and there are numerous jobs to keep the local economy strong. This means that Colorado makes the perfect investment for landlords who want returns on their investment without too much worry.
The most significant benefit of investing in Colorado's rental homes is the favorable eviction regulations. Unlike many other states, Colorado's eviction procedure is based on compliance demand notices that expire after 72 hours. This notification gives the tenant the option to pay and stay or depart the home after a period. When the 72-hour waiting period expires, and the tenant provides no payment, they have only 48 hours to vacate their residence. As a result, the Colorado eviction laws make it slightly easier for property owners to safeguard their assets.
2. Alabama
Low-income tax and effective property tax rates are two things that individuals appreciate in the state of Alabama. This can be beneficial to investors looking to save money.
Because Alabama state law doesn't prohibit late rent fees, landlords may charge whatever amount they choose. Moreover, this state's average property tax rate is only 0.48%, which is the second-lowest in the country.
Landlords also benefit from Alabama's eviction process. If they intend to terminate a lease due to a breach, they must provide a 14-day written notice stating their intention to do so if the breach is not remedied within 14 days. On the other hand, if they want to remove a tenant for unpaid rent, only a 7-day written notice is required.
If the tenant fails to repair the problem or pay the outstanding balance, including the late fees, the landlord can go to court and file an eviction complaint to begin the procedure.
3. Indiana
Due to its inexpensive housing costs and reasonable rental rates, Indiana is a popular destination for real estate investors.
Indiana's housing market provides affordable properties for beginner landlords. Homes are priced at around $191,054. It is much easier to find low-cost homes than in other states like California. Aside from price, Indiana's low taxes, a no-tolerance policy for non-paying renters, and landlord-friendly security deposit regulations give property owners an edge.
The deposit is returned to the renter 45 days after they move out of Indiana. As a result, the owner has plenty of time to thoroughly inspect the property to discover any tenant damages. Additionally, if a landlord needs to remove a tenant for non-payment or other reasons, the law only requires a ten-day notice. So, if tenants don't respond to the notification within 10 days, landlords may proceed with court-mandated eviction proceedings.
4. Illinois
With established rules on security deposits and a sizable tenant pool, Illinois has been recognized as a top landlord-friendly market. Suppose landlords can set their rental and security deposit rates without limitations in Illinois. After moving out, property owners have up to 45 days to check the property thoroughly before returning the security deposit. In addition, Illinois is one of the eviction-friendly states on our list, requiring only a 10-day notice before going to court.
Another reason Illinois is considered one of the most landlord-friendly states in the US is that it has a population of over 12 million inhabitants, meaning that there will always be people looking to move into housing. As long as landlords can keep your property up to date, landlords should have no problem finding renters in Illinois.
5. Georgia
There are no limits on late payments or security deposits in Georgia, the property tax rate is only 0.91 percent, and there are no rules in place for notification before entry. However, a 24-hour notice is advised.
Georgia landlords enjoy relatively flexible eviction rules, enabling them to address non-payment of lease violation difficulties rapidly. After a seven-day notice period, landlords can proceed with the eviction and retake physical possession of their property faster than in other less landlord-friendly states. Since Georgia has a lower cost of living index than the rest of the country, monthly rent prices are higher than elsewhere.
6. Arizona
Arizona has favorable landlord-friendly legislation on leases, security deposits, and eviction procedures. When it comes to property taxes, the housing market in Arizona has one of the lowest rates in the US, with just 0.62%.The fast and straightforward Arizona eviction procedure makes dealing with awful tenants easier for landlords. In addition, the state has non-compliance statutes that force tenants to pay their rent on time and provide truthful information on the lease and application.
In Arizona, there are three sorts of eviction notice: a 5-day notice is delivered to renters who are late on rent payments, a 5-day notice is given to renters who fail to maintain the rental property, and a 10-day notice is issued to tenants who have violated their lease or rental agreement. If the tenant does not correct the issue within the specified period, the landlord may begin an eviction lawsuit.
Arizona state legislation empowers landlords to terminate a tenancy if there are more severe problems. If the tenant fails to reveal a criminal record or unlawful behavior that is fixable and there is no hope for remedy, the landlord may issue an Unconditional Quit Notice.
7. Texas
Many factors make Texas a popular market for real estate investors. The state's population increased by nearly 3.5 million people in less than a decade, even more than those responsible for interstate migration like Florida or California. Even though home values have soared in recent years, they are still significantly lower than those in other major economic cities.
Although Texas has a somewhat higher property tax rate of 1.80%, landlord-tenant regulations are generally pro-landlord. When lease obligations are broken, the Texas housing market legislation works in favor of rental property owners. If you want to remove a tenant who hasn't paid rent, you only need to give them a three-day written notice. If your tenant fails to pay rent at the end of the three days, you may proceed with an eviction action in court.
The state does not set a cap on how large a security deposit can be, and the landlord-tenant laws allow landlords and tenants to negotiate their repairs. If tenants are behind on rent payments, landlords can refuse to pay for repairs.
8. West Virginia
West Virginia has a market of single-family homes that have been listed for an average of 75 days, which is above the national average by 43 days. This makes it easier to find a rental property purchase as more opportunities are available in West Virginia than in its surrounding states.
Rental properties in West Virginia are everywhere you turn and easy to find, helping make it convenient for people looking to buy a rental property anywhere in the state. In West Virginia, the median property tax rate is 0.57% making it the state with the eighth-lowest property taxes in the country.
The typical home value in West Virginia is $118,581, the lowest in the country, and the median rent for a home in West Virginia of $727, also the lowest in the country.
There is no Security Deposit Restriction, and a landlord has 65 days to return a security deposit. No specific rules permit a tenant to repair and deduct rent or withhold it for repairs. And ultimately, the landlord can file for eviction immediately without giving notice to tenants.
9. Florida
Purchasing investment properties in Florida appears to be a gratifying experience. The state provides prospective homeowners with a high rate of return on their investments.
Florida has no rent control, and late fees are not prohibited. There is also no maximum on how much a landlord may charge for a security deposit, but it must be returned within 15-60 days after the tenant vacates the property. Landlords can deduct from security deposits to pay for damages incurred from tenant abuse above normal wear and tear.
In Florida, a written notice of three days late on rent is all that is needed to start the eviction process. Suppose you're evicting a tenant because they caused intentional damage to the property or repeatedly violated the lease. In that case, you'll need to give an Unconditional Quit Notice with a deadline of seven days for them to relocate before going through with the eviction in court.
Furthermore, the real property tax rate in Florida is approximately 0.98 percent, somewhat lower than the national average of 1.08 percent. Given the above, it's no wonder that there are many more Florida build for rent communities being developed.
10. North Carolina
This is an attractive location to invest in rental property because of its low taxes and a job market that is constantly growing and positive in-migration.
There is no North Carolina eviction law, as there is in some other states. If a lease term or rental agreement term is broken, landlords can give tenants a termination notice, also known as an Unconditional Quit Notice, to end the tenancy.
Because there is no state-imposed rent control or limit in North Carolina, the landlord may demand any rent price negotiated between the parties. There are also no legal restrictions on how the rent must be paid in the state of North Carolina.
North Carolina has a median home value of $260,597, which puts it towards the lower end of housing costs in the United States. The average effective property tax rate is 0.77%, considerably below the national average of 1.07%.
11. Kentucky
If you're currently struggling with your mortgage payments and are thinking about selling your home to cut your losses, buying rental property in Kentucky might be beneficial. Because it can provide some financial stability if real estate values continue to go down. The average property tax rate in Kentucky is 0.83 percent, and evictions are quite lenient there.
Landlords only have to give a seven-day notice to a renter who does not pay rent. For other violations, notification of 15 days is provided, so the tenant has an opportunity to correct the problem. If the tenant doesn't remedy the situation within that period, the landlord may go to court and initiate an eviction action against them.
Suppose the tenant has a track record of failing to pay rent on time or continues to have the same violation after six months. In that case, the landlord can issue an Unconditional Quit Notice forcing them out of their residence within 14 days, even if they can pay. The landlord may then keep 60 days' worth of security deposit returns to see how much money should be kept as compensation for repairs.
Moreover, there are no laws in Kentucky that cap the late fees that a landlord may charge. There is also no restriction on how much a landlord can take from a security deposit.
12. Louisiana
The large rental market of this state gives plenty of options for landlords trying to find good tenants that pay their rent on time and take care of the properties you provide for them.
In Louisiana, the median property value is $147,600, and the median rent is $1,110. There is no limit on the security deposit in Louisiana, and a landlord has a full 30 days to return a tenant's security deposit after move-out. In addition, for nonpayment of rent or other reasons, landlords must give only five days' notice to terminate the lease.
Because landlords in Louisiana are allowed to set and increase rental rates, evict tenants, and enter properties whenever they choose, the state is frequently labeled a landlord-friendly one.
Suppose a former renter decides not to pay their rent within three days after it is due. In that case, a landlord can file a lawsuit against them without providing written notice beforehand under Louisiana state law. This is also true for nonpayment of utilities, even though different time limits depend on whether or not these services were previously included in the rental agreement with the tenant.
How to Recognize Less Landlord-Friendly States
While by no means an exhaustive list, factors that may make a state less than ideal for property investment include:
- A large population without a corresponding demand for rental units
- High building costs & taxes combined with same or falling property values
- Laws that disadvantage the landlords
- High crime rates
- Lack of jobs in the area coupled with high transportation costs
- Poor public schools
- Safety concerns
These factors can cause people interested in investing in rental properties to shy away from an area despite having potential income generation through renting.
If you are a landlord in one of these states, or anywhere nationwide, ensure you have America's best rental property insurance to protect yourself, and your investment.
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