The state you invest in has a major influence on how successful you are. This is due to the fact that property owners are treated very differently in some states compared to others.
What does “landlord-friendly" mean? In the real estate industry, this is a state that has policies that are in favor of the person who owns the property. In “resident-friendly” states, the resident is favored over the landlord. Now, it’s important to note that just because a state is landlord-friendly, it doesn’t mean residents live in bad conditions or are being mistreated. It simply means that the state government allows the property owner to make decisions as it relates to how they operate their properties, and the market is suitable for investment.
Below, we’re diving into the factors of what makes a state ideal for investors, and ranking the top 8 most landlord-friendly states of 2023.
What Do You Mean Landlord-Friendly?
A state is considered landlord-friendly if they meet most of this criteria. It isn’t just limited to government policies.
Economic Health: A state with a strong economy is essential for real estate investors. Landlords and owners rely on a strong business ecosystem, healthy unemployment rate, strong population growth, and high gross domestic product to provide their properties with a consistent flow of residents. Without the residents, they don’t make any cash flow from their property!
Real Estate Taxes: Property owners pay taxes on their property in every state, but the rates vary. California property taxes are much higher than they are in North Carolina, for example. These operating expenses eat into the profits made on a given property, so landlords need to account for these costs.
Rent Control: This one’s sort of a hot buzzword. Rent control is defined by Investopedia as “is a government program that places a limit on the amount that a landlord can demand for leasing a home or renewing a lease.” Rent control is often in the news as either a really good thing or a really bad thing. Either way, it has an impact on a property owner’s ability to increase rents at their property, and thus, increase their property’s value (if it’s a commercial property). As a result, their profit potential is capped. This is why investors must understand the local rent control policies before making a property investment.
Eviction Guidelines: If a resident is not paying, or is causing damage to the property, there may come a time when the owner needs to evict them. This process of removing a resident is easier in some states than others. In certain states, the process can require multiple notices, high fees, and expensive lawyers to push the eviction through. In multifamily, “value-add” business plans often involve replacing non-performing residents with residents who will pay, and also renovation units before filling them with new residents in order to justify higher rents. But the process of evicting current residents who aren’t performing can be more time consuming and expensive than investors anticipated.
Security Deposits: When a landlord rents out a unit to a resident, they typically ask that the resident pay a security deposit. This money acts as a sort of insurance in the event that the resident damages or loses property once they move out. Some states have caps on how much a landlord can charge in security deposits.
Landlord-Resident Laws: These policies outline the legal relationship between landlords and their residents. It encompasses a variety of things, including how much notice a resident must have before a landlord enters their unit, or before they end their lease.
Understanding these factors in any state you might invest in is key to mitigating risk and maximizing profitability in real estate. It will also save you money and headaches.
Next up, here are the 8 U.S. States that are the most landlord-friendly.
1. Alabama
Median Property Tax Rate: 0.43% (2nd Lowest in U.S.)
No rent control
Security Deposits: Up to 1 month’s rent (with exceptions)
No late fee restrictions
Residents have 7 days after missing a payment before the landlord can file to evict
Must provide 2 day’s notice before entering a resident’s unit
2. Colorado
2nd strongest state economy in the U.S. and 1st in overall employment
Median Property Tax Rate: 0.52%
No rent control
No security deposit caps or late fee restrictions
Residents have 10 days to pay rent once it’s late before owner can file an eviction
No notice is required before entering a resident’s unit
3. Georgia
25th state economy in the U.S. and 9th for business environment
Median Property Tax Rate: 0.95%
No rent control
No security deposit or late fee restrictions
Evictions can be filed as soon as rental payment is missed
No notice is required before entering a resident’s unit
4. Arizona
4th in the U.S. for population growth and GDP growth
Median Property Tax Rate: 0.60%
No rent control
Security deposit capped at 1.5x the monthly rent
Evictions can be filed 5 days after rental payment is missed (for $35 fee)
2 days notice is required before entering a resident’s unit
5. Texas
9th state economy in the U.S.
Median Property Tax Rate: 1.90%
No rent control
No security deposit or late fee restrictions
Evictions can be filed 10 days after rental payment is missed ($25 fee)
No notice is required before entering a resident’s unit
6. Florida
Recently ranked the fastest growing state, 8th state economy
Median Property Tax Rate: 0.89%
No rent control
No security deposit or late fee restrictions
Evictions can be filed 3 days after rental payment is missed ($180 fee), residents can appeal for up to 30 days after filing
15 day notice required before terminating a lease
12-hour notice is required before entering a resident’s unit for non-emergencies
7. Indiana
Colleges: Purdue and Notre Dame
Median Property Tax Rate: 0.83%
No rent control
No security deposit or late fee restrictions
Evictions can be filed 10 days after rental payment is missed
“Reasonable” notice is required before entering a resident’s unit
8. North Carolina
Median Property Tax Rate: 0.80%
No rent control
Security deposit capped at 2 months rent (except for month-to month leases, which is 1.5x monthly rent)
Evictions can be filed 10 days after rental payment is missed
7 days notice required to amend/terminate lease
24 hour notice is required before entering a resident’s unit
Where you invest matters, so make sure to do research and dig into the market before placing your money there.
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