Operating as a landlord is one of the best ways to pursue a career in real estate. Few exit strategies, for that matter, 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.
From tenant-landlord laws to taxes and insurance rates, landlords in each and every state are expected to abide by countless rules and regulations. It is worth noting, however, 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, there are several existing factors that 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:
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, for example, are so extreme that they may actually jeopardize the financial standing of the landlord. On the other hand, there are several states that have developed a more balanced reputation—one that favors each party. As an 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 that fall 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 that will be 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.
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The Best States For Landlords
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 2020 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, but 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, the whole of Texas tends to place an emphasis on the preservation of landlords’ rights in the event lease conditions are broken. Few places, for that matter, 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 incredibly attractive.
One of the most landlord-friendly attributes about 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. It is worth noting, however, 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 or not 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 at least 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 side of the landlord. Whereas many states protect the rights of the tenants 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 are limited to 72 hours. At that time, tenants are given two options: 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.
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 (about it), certain states are simply better to invest in than others. Landlord-friendly states, for example, tend to place the rights of homeowners ahead of their tenants, which bodes incredibly well for any rental property portfolio. Combined with great cash flow, there’s no reason a landlord-friendly state couldn’t simultaneously put an asset over the top while mitigating risk. Therefore, pay special considerations to the rules in regulations in your particular state.
Are you currently investing in a landlord-friendly state that didn’t make the list? Let us know why you think the state you chose to invest in is one of the pro-landlord states in the comments below: