Real estate investors are managing successful rental businesses across the U.S. But there’s no doubt that some states make better long-term investments than others.
The best investors don’t only know how to invest, but where to do so. The success of a rental property investment often depends on landlord tenant laws in the localized market it lies in, but certain states make investing inherently easier for landlords due to legal regulations and lease agreement policies.
Whether you’re a new or seasoned investor, knowing where to target your next rental property investment is critical. In this article, we’ll cover the criteria to be on the lookout for as well as the top five best states for landlords and successful rental property owners.
What Does It Mean for a State to Be Landlord Friendly?
When a state is landlord friendly, its policies, rental regulations, current market conditions, or other factors are favorable to landlords and investors. For instance, a high average rental income and rental rates can make a state attractive to real estate investors, but so can lax legal regulations found within a state’s landlord-tenant code. The most landlord friendly states have a favorable combination of these factors, even if they don’t have every single one.
What Makes a State “Landlord-Friendly”?
Here are a few of the factors that make a state landlord friendly.
1. Low property taxes and insurance rates
Property tax rates are one of the biggest factors landlords look at when deciding whether to invest in rental properties in a state. Some states have an extremely high rate for property taxes, while others have lower property taxes, which are more favorable for investors and especially for those who own or plan to own multiple rental properties.
Insurance rates are also a consideration. The national average cost of landlord insurance is around 20% more than a typical homeowner’s policy, but rates vary by location. This is a result of different levels of risk in different areas of the country— some states have more natural disasters than others, and the risk of unpaid rent, damages, and other issues also varies. As a result, landlords consider both the property taxes and insurance rates that will affect their rental property assets before choosing to invest.
2. No statewide rent control (or banned)
Rent control laws are laws that regulate or restrict the price landlords can ask tenants to pay rent. Rent control is often instated to keep markets in check and reduce the likelihood of unpaid rent due to unreasonable rates.
Across the U.S. states, there are a variety of approaches to rent control. A state can either:
- Instate state-wide rent control laws (to which all localities must comply)
- Not enforce state-wide rent control, but allow localities to instate it
- Only allow rent control during emergencies (e.g., the COVID-19 pandemic)
- Ban it entirely (also known as pre-empted status)
The most landlord friendly states have either banned rent control entirely or have very few cities and localities that enforce it. No rent control doesn’t guarantee that tenants will pay rent on time, but it does guarantee that rent prices won’t be formally capped by the government.
3. No or few restrictions on late fees/security deposits
Most states have laws regulating the amount landlords can charge for certain fees and deposits, such as late fees for unpaid rent and security deposits. Landlord-friendly states have no/few restrictions or relatively lax restrictions. For example, a landlord-friendly state may allow landlords to choose their own late fee amounts when tenants do not pay rent, charge fees as soon as unpaid rent is late, collect large security deposits, and/or allow landlords ample time to deduct funds from deposits when the lease on the rental property ends.
4. Quick eviction process
Lease violations inevitably lead to the eviction process, which can often be tedious and costly. Landlord-friendly states make it easy for landlords to remove tenants who do not pay rent or repeatedly violate their rental agreements. Although eviction is a complex legal procedure in every state, some states’ rental laws make the process quicker, easier, or less expensive than others.
Top 5 Most Landlord Friendly States
Now that you know which factors make a state landlord friendly, here are the top five best landlord friendly states for your 2024 investments.
1. Alabama
Alabama makes our list due to its low tax rates and lax rental laws and fee regulations.
- Second lowest tax rate (0.41%) in the U.S., according to Rocket Mortgage
- No statewide rent control
- No limit on late fees
- No mandatory grace period for rent
- Extra-long period to return security deposits (60 days)
- Seven-day eviction notice period for unpaid rent and other lease violations
- Tenants are not permitted to withhold rent or repair and deduct if the landlord fails to remedy a condition
2. Texas
Texas is one of the top landlord friendly states due to its expedited eviction process and several cities with high rental rates.
- No statewide rent control
- No security deposit limit
- No advanced notice necessary before entry into a rental property
- Three-day eviction notice period for all lease violations
- Option to file for “immediate possession”
3. Colorado
Colorado makes the list of best states for rental property owners due to its low tax rate, rent control ban, and lax rental laws/fee restrictions.
- Third lowest property taxes rate in the U.S. (0.51%)
- Banned rent control
- No security deposit limit
- Extra-long period to return security deposits (60 days)
- No advanced notice required before entry for most reasons
- Shorter eviction notice periods for unpaid rent and lease violations (three to ten days)
4. Arizona
Arizona is one of the best landlord friendly states due to its relatively low tax rate and shorter eviction notice periods for rental properties.
- Low property taxes (0.66%)
- No statewide rent control
- Shorter eviction notice periods (five to ten days)
5. Ohio
Although Ohio has higher property tax rates, it is nonetheless one of the best states for landlords to invest in due to its open security deposit policy, lax lease agreement regulations, and simple eviction process.
- No statewide rent control
- No late fee limits
- No mandatory grace period
- No security deposit limit
- Short eviction notice period for nonpayment (three days)
Honorable Mentions
Below are some of our honorable mentions for most landlord friendly states:
- Nevada – Nevada has a notoriously speedy eviction process that many lawmakers have attempted to revise. Currently, Nevada makes it very easy to remove a tenant under an expedited summary process action.
- Florida – Florida has no statewide rent control, no security deposit limit, and shorter eviction notice periods.
- Illinois – Illinois has no statewide rent control, no late fee limit, no grace period minimum, and shorter eviction notice periods.
- Indiana – In Indiana, rent control is banned, there is no late fee limit or grace period minimum, and there is also no security deposit limit.
- Michigan – In Michigan, rent control is banned, and there is no late fee limit, security deposit limit, or mandatory grace period for rent.
City and Local Regulations
When we talk about a state being “landlord friendly,” we’re referring to its statewide conditions and regulations. It’s important to remember that county and municipal regulations are overlayed over state laws. These localities often establish stricter regulations for properties within their boundaries than the ones enforced by the state itself.
This means there are better and worse cities for landlords in even the most landlord friendly states. It’s up to the investor to do their research into the individual local laws that may apply in the area they intend on investing in. Be sure that your lease or rental agreement complies with local regulations in addition to state ones.
Does “Landlord Friendly” Mean “Tenant-Unfriendly”?
It’s worth noting that just because a state is landlord friendly, this doesn’t necessarily mean that the state is hostile to tenants. It just means that this state’s policies or conditions are ideal for landlords or real estate investors. Every state has protections in place to guard tenant rights and make sure that both parties within a rental agreement are treated fairly under the law.
Conclusion
If you’re looking to invest in a new property in 2024, the five states listed above are a promising bet. However, be sure you do the necessary research into local/municipal laws on landlord-tenant relations and rental agreement policies so that you are fully informed of the implications of investment wherever you decide.
