Find out how real estate investors can choose the most landlord-friendly state for their next investment property.
Landlords choosing an investment property should always consider the real estate laws in the state where the rental property is located. Local regulations significantly impact a landlord’s ability to conduct their business and make a profit — which makes determining where to invest in real estate critical to your success. In this article, we'll share strategies to help investors choose landlord-friendly states.
A landlord-friendly state prioritizes the needs and interests of landlords and property owners through favorable laws and regulations.
For example, such a state would typically have a streamlined eviction process, clear and concise lease agreements, low property taxes, and minimal regulations on rent increases. In addition, a landlord-friendly state would have strong job growth and a lower cost of living to attract more renters, making it easier for landlords to fill their properties quickly.
Many investors make real estate purchases based on the ease of doing business in a property's location. The following factors impact the time and hassle that landlords in certain areas may experience when managing rental properties.
Rent control policies are a controversial topic that aims to limit rent prices in market-rate rental housing through government-enforced measures. However, only a handful of states have rent control policies in place at either the state or local level.
Currently, 31 states have preemptions that prevent local governments from adopting rent regulation laws. On the other hand, California, the District of Columbia, Maine, Maryland, Minnesota, New Jersey, New York, and Oregon are the exceptions to this rule, and each has implemented rent control policies.
According to the National Multifamily Housing Council, the majority of states without rent control have preemptions, except for six states and the District of Columbia. While some believe rent control is necessary to make housing more affordable, others argue it has unintended consequences and could lead to a shortage of available housing.
Tenants' rights groups in Boston, Massachusetts, are currently campaigning for rent control bans to be lifted to combat increasing eviction rates. Rent control legislation is also expected to change in cities across Arizona, Florida, Hawaii, Illinois, Kentucky, New Jersey, New York, and Washington following moves by regulators to add or expand rent control protections.
All landlords should be fully aware of their tax obligations when they purchase a rental property.
For instance, they might be tempted to purchase property in Illinois, New Hampshire, and New Jersey — but these states have some of the highest property tax rates in the country. While some cities appear to have relatively low tax rates, it's important to look at their historical tax growth — for example, tax rates in Greely, CO, and Anchorage, AK, rose more than 26% from 2019 to 2020.
On the other hand, Texas, Michigan, New Mexico, and other states restrict how much taxes can grow in a single year.
Landlords should be sure to capitalize on all available tax benefits of owning rental property in certain cities and states. Most states offer tax benefits and deductions to attract real estate investors to their jurisdictions. These benefits can include the ability to write off rental property-related expenses, such as maintenance costs, utilities, insurance premiums, and more.
Despite their best efforts, some landlords end up renting their property to problematic tenants who default on payments, damage the property, or refuse to meet predefined obligations. Landlords can minimize this risk by conducting thorough tenant screening and choosing a state that enables fast, straightforward evictions when necessary. Alabama, for example, allows owners to evict tenants for unpaid rent with seven days’ written notice, and Florida allows just three days' notice in certain circumstances.
Rental property owners must consider the laws that govern their business in each state, such as the capital gains exposure that a business has upon the sale of their property.
Rental property owners that choose to replace the properties they sell with another purchase can use a 1031 exchange to limit their capital gains exposure — but investors don't always immediately purchase new properties after selling one in their portfolio. Property owners should always consider how long it would take them to liquidate their assets should they need to and their legal and tax obligations in different states.
Idaho, Indiana, and Ohio are examples of states that allow property owners to sell or transfer ownership of their assets with low taxes or no wealth-related taxes. On the other hand, New York, Maine, and Vermont tack extra tax obligations onto property owners who inherit or are gifted property to use as business assets.
Before purchasing rental property in any state, landlords should evaluate the local rental market. This evaluation should include demand for rental properties, operating costs, and rental rates.
As costs rise across the country and hybrid work arrangements grow in popularity, tenants are looking for more cost-effective rental options. This has made up-and-coming cities such as Boise, Idaho, and Salt Lake City, Utah popular locations for renters.
That said, landlords should be aware of the high operating costs of managing and maintaining properties in these popular areas and price their rent accordingly to ensure a comfortable profit margin.
In evaluating whether a state is landlord-friendly, landlords must understand the regulations related to property maintenance and safety. This includes familiarity with the state's requirements for repairs and maintenance, health and safety codes, and habitability standards.
Responsibilities for repairs and maintenance may vary from state to state, with some placing it on landlords and others on tenants. It is also important to consider health and safety codes, as states often have regulations to ensure rental properties meet standards for fire safety, electrical systems, plumbing, ventilation, and pest control.
Understanding and complying with these regulations can help ensure that rental properties are safe and habitable for tenants and minimize potential legal and financial liabilities for landlords.
Some states may have landlord-friendly regulations that support efficient property management. For example, states that do not require landlords to obtain rental licenses or permits or have minimal maintenance and repairs regulations can be considered landlord-friendly as they reduce administrative burdens and costs for landlords.
States that provide resources and support for landlords, such as landlord training programs, legal assistance, and access to educational materials, can be considered landlord-friendly. These resources can help landlords stay informed, comply with regulations, and effectively manage their properties.
States with a wide range of affordable and comprehensive options can be considered landlord-friendly. Landlord insurance provides protection for landlords against potential risks, such as property damage, liability claims, and loss of rental income. States that have a competitive market for landlord insurance — with multiple providers and coverage options — can empower landlords to manage risks effectively and protect their investments, making owning and operating rental properties easier and more affordable.
Rental property owners can choose from many different states that serve investors with different needs. Whether you are a buyer looking to purchase a short-term rental property or to serve long-term tenants, here are some of the most landlord-friendly states in 2023.
Alabama gives landlords significant leeway in managing their rental properties and inhabitants. As noted earlier, landlords are only required to give tenants seven days' notice before eviction if they fail to pay their rent and 14 days if they violate their lease terms. Alabama also has no limits on late fees landlords can charge and does not require landlords to obtain a license before renting their property.
Florida has no rent control, and there are also no limits on late fees and security deposits that landlords can set for their own protection. As noted earlier, evictions are often straightforward in the state, where in some cases, landlords are only required to provide tenants with three days' notice if they fail to pay their rent.
The state also has low property taxes, with the average property owner being on the hook for just 0.98%. That said, Florida landlords should be aware of the state's weather risks (e.g., hurricanes, high winds, and flooding) and purchase the right landlord insurance coverage.
The Lone Star State gives potential investors a market with high rental property demand, relatively low prices, and significant landlord protections. Landlords in the state are only required to provide three days' notice before evicting tenants who default on rent. They are also allowed to seek compensation for any inconveniences or financial losses they have faced due to the tenant.
While property in Indiana is cheaper than in other states, the median rent in the state has reached $1,100 and is expected to rise in the coming years. Landlords here can expect high returns while receiving protections such as a 45-day deposit hold to cover damages and a 10-day notice period for defaulting tenants.
Unless the lease specifies it, landlords in Georgia don't have to provide their tenants with any written notice before eviction proceedings. Disputes and issues are settled quickly, with arbiters usually favoring landlords. Late fees and security deposits are also left to the discretion of landlords, with no laws restricting how much they can charge.
Multiple factors support Louisiana's reputation as a landlord-friendly state. Firstly, it boasts one of the lowest effective property tax rates in the U.S. Additionally, rent control is preempted by Louisiana laws, and the eviction process is known for being swift, taking as little as two to five weeks to complete.
In addition, the state's landlord-tenant law is known for its flexibility when it comes to lease agreements.
Kentucky has earned a reputation as a landlord-friendly state due to its lack of rent control laws. This grants landlords the freedom to set their own rental rates and evict tenants without interference from local governments.
In addition, there are no restrictions on security deposits, and landlords have a generous 65-day window to return them. Kentucky's landlords also have legal grounds for eviction, including nonpayment of rent, violation of the lease agreement, and the end of the lease term.
Landlords have to make the decision to purchase a rental property before receiving a single cent of profit — but that decision will greatly affect their future earnings.
Choosing the state with the right balance of protections and benefits can help landlords find a property that serves their needs and provides a healthy return on investment.
Find out how Azibo can simplify your rental property finances regardless of location.
As we continue into 2023, it's clear that Texas, Alabama, and Florida are among the top U.S. states prioritizing landlord-friendly policies. Other favorable destinations for property owners and investors include Georgia, Indiana, Missouri, North Carolina, Tennessee, and Utah.
With their landlord-friendly regulations and supportive environment, these states are widely recognized as prime locations for landlords to conduct business. Offering a solid legal framework and protections for landlords, they provide an ideal landscape for property management and investment.
As of 2023, states like Louisiana, Alabama, South Carolina, Nevada, Arkansas, Texas, Indiana, Georgia, Tennessee, and Mississippi are known for having favorable laws for landlords.
However, it's important to note that landlord and tenant laws vary by state, so researching and understanding the specific laws in your state is crucial for compliance. Stay informed to confidently navigate the complexities of being a landlord and maximize your investment opportunities.
Florida is widely recognized as a landlord-friendly state, boasting relaxed regulations on rent control and favorable eviction procedures. Landlords in Florida can evict tenants after issuing a 3-day notice for nonpayment of rent and terminate leases with just 15 days' notice.
Florida does not impose state-wide rent control ordinances, allowing landlords to charge rent without limitations. The state also allows landlords to return all or part of a security deposit within a reasonable timeframe of 30 days, adding to the favorable environment for property owners.
With these lenient regulations, Florida stands out as an attractive destination for landlords looking for a supportive legal landscape to conduct their business with ease and flexibility.