When it comes to laws and regulations surrounding rental properties, each state has its own set of rules. This means that some states may make it easier for you to own a rental property, while other states make it a little more difficult.
So, which states are the most ideal for someone looking to invest in real estate? How do you identify a landlord-friendly state?
While it may seem overwhelming, we know just how to choose the best state for your investments.
Keep reading to learn what makes a state landlord-friendly, and which ones to consider investing in.
What Is a Landlord-Friendly State?
Before you purchase an investment property, it’s important to do all the research you can in order to prepare yourself.
Look into all the rules and regulations that apply to your rental. These laws will not only be at a state level, but some will be implemented at a local level as well. It is important that you conduct this research prior to purchasing a rental home.
Whether it’s security deposits, the eviction process, rent control laws, or a timeline to make a repair, nearly every aspect of owning and managing a rental property will have its own regulations. For this reason, it’s important to consider how these laws will impact your business as you decide where to purchase an investment property.
Keeping this in mind, here are some characteristics that are present in landlord-friendly states in the US:
A Simple and Straightforward Eviction Process
Some states have such complex eviction laws that the whole process of evicting a tenant can take up to six months. In landlord-friendly states, the eviction process will be relatively quick and straightforward, and only take about five weeks to three months.
The regulations will have a low tolerance for tenants who do not pay rent or abide by the terms of their lease.
Standard Landlord-Tenant Laws
It is always important for a state to ensure that tenants’ rights are valued. However, some areas of the country have regulations that go beyond what is necessary.
This ultimately ends up putting the landlord at a financial risk. In landlord-friendly states, the landlord-tenant laws have protections that are fair for both parties involved with the property.
Lack of Rent Control Regulations
Rent control regulations mean that the cost of rent cannot be increased, even if the costs related to the property, such as taxes and landlord insurance, have raised over time.
If you are considering purchasing a rental home in a state that has strong rent control regulations, make sure to review how these measures will impact the financial health of your rental. Additionally, keep in mind that rent control percentages could go up at any time.
Low Property Taxes
Property tax rates will often vary from state to state. The national average is 1.08%. However, it’s always worth looking into whether your state’s tax rates are higher than average, and how that could affect the return on your investment.
Licensing and Registration Rules
Some states and cities in the US require investors to obtain specific certifications in order to officially rent out a property. There are some landlord-friendly states that make it easier to become a rental property owner or landlord.
Adequate Returns on Your Investment
Lastly, as a rental property owner, you will want to make sure that you are always maintaining a healthy and consistent cash flow so that you can generate an adequate amount of returns for your investment. Make sure to pay attention to data such as your cash flow and your expenses.
You should also remember to consider the appreciation of your investment. Remember, your goal should not just be to generate income with your property but to keep that income as well. Just because the gross income of your rental property is higher doesn’t mean your net income will be.
Different states will have different amounts of costs and taxes associated with owning rental properties, so make sure to consider whether or not you will be able to generate a healthy income in your chosen state.
Top 13 Landlord-Friendly States
Now that you know what makes a state landlord-friendly, let’s dive into which states across the country make rental properties a lucrative and worthwhile investment.
The 13 states listed below (in no particular order) are sure to help you make a solid income from your property, all while avoiding laws that are too restrictive and higher property tax rates.
Here are our top picks:
1. Arkansas
Landlord-tenant laws in Arkansas tend to heavily favor landlords. In fact, Arkansas is the only state in the US that does not make the landlord liable for the upkeep of the rental property. However, for other reasons, you will want to properly maintain the property anyways!
Additionally, should a tenant leave their belongings in the rental home after vacating the property, the landlord is allowed to do whatever they want with the items.
Similarly to many other southern states in the country, Arkansas has been growing economically over the last few years, making it a great place to invest in real estate.
2. Michigan
In Michigan, the legislation makes it one of the most landlord-friendly states. With the economy doing well in this state, employment is spread more evenly across a wide variety of professions.
While the property taxes are slightly higher than what may be ideal for a first-time investor, Michigan is definitely a great place to own a rental home.
3. Arizona
Arizona has fair legislation for both landlords and tenants. The eviction process in Arizona is quick and simple compared to other states, and landlords can end a rental agreement in as soon as 10 days should they discover that a tenant has provided false information on their rental application.
Further, Arizona’s average property tax rate is one of the lowest in the country.
4. Wyoming
When it comes to late rent payments, Wyoming legislation does not mess around. If tenants pay rent more than three days late, a landlord in Wyoming has the right to enter the rental home without notice. Further, a landlord may end the lease after three days of nonpayment of rent.
Wyoming also has a fairly low average property tax rate, being the ninth-lowest property tax rate in the country.
5. Texas
If you want a state that you can be absolutely positive about when it comes to landlord-friendly regulations, look no further than Texas. There’s a reason Texas is a popular state for many real estate investors in the US.
This is all due to a variety of factors including population growth, relatively affordable housing, and extremely landlord-friendly regulations.
The legislation in Texas allows landlords to quickly and easily evict problem tenants if there have been lease violations. Plus, there are no limits when it comes to how much a landlord may charge a tenant for a security deposit.
Landlords and tenants also have the opportunity to agree on who is responsible for certain repairs to the property. While the legislation is very landlord-friendly, the downside to Texas when it comes to owning rental properties is that the average property tax rate is on the higher side.
6. Indiana
With the landlord-tenant laws in Indiana, landlords are able to take 45 days to inspect the property after the tenant moves out before being required to return the funds. This gives landlords plenty of time to ensure that the property was not damaged by the tenant.
When it comes to the price of purchasing a property, Indiana has some of the lowest costs in the country. There is also a decent home appreciation in the state. Further, the cost of living in Indiana is lower than in most states in the US.
7. Colorado
In Colorado, the eviction process is simple and fairly quick. Additionally, there is no limit to how much a landlord can charge a tenant for a security deposit.
Even though the cost of purchasing a property may be higher in Colorado, especially in cities such as Denver and Colorado Springs, this state can still be a lucrative place to invest in real estate. Outside the hot markets, there are plenty of affordable options for those looking to own a rental property in Colorado.
8. Georgia
Georgia is another state that is high on the list of the most landlord-friendly states. The average property tax rate in this state is relatively low and the economy is strong, which helps to drive the value of homes and the costs of rent.
The legislation in Georgia also leans in favor of landlords. There is no limit to the cost of security deposits, and in the event that a tenant fails to pay their rent, the landlord may terminate the lease or rental agreement without notice.
9. North Carolina
North Carolina is a state that many landlords have begun to take notice of in the last few years. This state has solid economic potential, as it has recently seen a boost in population and industry growth. This is especially true in cities such as Charlotte and Durham.
Further, this landlord-friendly state allows rental property owners and landlords to terminate a lease immediately if there are any lease violations by the tenant.
10. Tennessee
In Tennessee, the three main markets for rental properties are Nashville, Knoxville, and Memphis. These cities have a relatively low average cost for homes, making them excellent for property owners looking for a cost-effective investment to rent out. Additionally, the cost of living is relatively low in this state and there are low property taxes.
The legislation in Tennessee also tends to be fairly landlord-friendly, making it an excellent option for any real estate investor.
11. Ohio
Another very landlord-friendly state is Ohio. Properties in this state are generally affordable, and the returns on these investments tend to be relatively high. However, in this state, there is legislation that requires landlords to hold their tenant’s security deposits in a separate interest-bearing account at 5% interest.
Landlords must also pay the tenants the interest that has accumulated annually, even if it’s just a few dollars. Even so, Ohio is a great place to own a rental property. The three larger real estate markets, Cincinnati, Cleveland, and Columbus, all offer buyers affordable property prices and a low cost of living.
12. Kentucky
When it comes to landlord-friendly legislation, Kentucky takes the cake. There is no limit to how much a landlord can charge tenants for security deposits, nor the amount of notice given for a rent increase if the lease is month-to-month. Property taxes in this state are lower than the US average.
13. Mississippi
In Mississippi, landlords do not have a limit when it comes to how much they are able to charge for security deposits. Landlords also have 45 days after the end of the tenancy to return the remaining security deposit funds to the tenant.
Like other states on this list, Mississippi has a relatively low cost of living, which means it is often easier to purchase a property. In the three largest cities of Jackson, Gulfport, and Hattiesburg, the average price of a home is very low.
Honorable Mentions:
- West Virginia
- Louisiana
- Virginia
- Idaho
- Missouri
- Idaho
- North Dakota
- Minnesota
- Oklahoma
States That Are Less Landlord-Friendly
Now that you know which states are the most ideal for a rental property owner or landlord, let’s look at which states are the least landlord-friendly.
These states generally make it harder to earn steady revenue from your rental property, in addition to making tenant disputes more complicated.
1. California
At first glance, California may seem like a rental property owner’s dream. The state is known for extremely high property appreciation and high rent prices. However, these properties come with an equal amount of expenses.
In cities such as Los Angeles and San Francisco, the return on property investments tends to be surprisingly low. Further, California has strict statewide rent control measures, in addition to city-specific regulations.
2. New Jersey
Out of any US state, New Jersey has one of the highest property tax rates. New Jersey also has extremely strict eviction laws that will not make it easy to get rid of a problem tenant in your rental home.
3. Oregon
The state of Oregon has statewide rent control regulations set in place that make it difficult for a rental property owner or landlord to keep up with rising expenses over time. In fact, you can only raise the cost of rent by 7% every year.
Additionally, landlords are required to give a tenant three months’ notice and pay them the equivalent of one month’s rent if they wish to evict the tenants without cause.
4. Massachusetts
When it comes to restrictive regulations set in place for landlords, Massachusetts has some of the strictest laws in the country. Landlords in this state are not allowed to charge a fee for tenants who pay rent late until they are 30 days past due, and they are required to store any belongings that an evicted tenant has left behind for at least six months.
Additionally, similarly to other states in the country, landlords must store their tenant’s security deposit in an interest-bearing account of at least 5%. The landlord must pay the tenant any interest funds annually. Further, unless specifically outlined in the lease agreement, landlords are responsible for any utilities at the rental home by default.
The Least Landlord-Friendly Cities
The following are cities that are the least landlord-friendly in the US. This is usually due to economic factors or landlord restrictions that have been put in place.
- Los Angeles, CA
- San Francisco, CA
- Boston, MA
- Chicago, IL
- Portland, OR
- New York, NY
Bottom Line: Most Landlord-Friendly States
There you have it! Now you know all about the most landlord-friendly states to consider buying a rental property in, while also being aware of the pitfalls that exist in the less ideal markets in the US.
When you are purchasing a rental property, it is always imperative to know exactly what you are getting into when it comes to the rental market in the area and what fair market rent is in that city.
From security deposit laws and eviction process regulations to the economic health of your chosen state, make sure that you always do your research prior to adding a new rental home to your resume. If this seems overwhelming, it can be useful to hire a property manager to help you navigate the real estate industry.
