Learning the Hard Way: Why You Should Invest In Landlord Friendly States
As a newer investor, there is advice given by more experienced investors that we have to learn the hard way.
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One of those truisms is to “invest in landlord friendly states.” However, what can be missing for a new investor are the bruises earned for not listening? This is my own personal view of the lessons learned regarding that truism, and I hope it can shed some clear and specific details on what I encountered, and how this now determines my entire real estate investment strategy.
I’m a newer investor who has invested in Virginia, Maryland, and Ohio, and it’s been and extreme learning experience! However, now that I know the difference between that truism regarding friendly states, I now know that Maryland can be extremely tenant friendly, with Virginia being more land lord friendly. Let me relay to you how figuring this out has specifically changed my entire real estate strategy going forward.
Entitled To Your Earnings
It's amazing how open tenant friendly city and state governments feel to dipping into your accounts. And, no so subtly enforced through strong arm tactics that can involve code enforcement, the justice system, and legislation to ensure you can not do your business unless everyone gets their share. For tenant friendly Baltimore, MD, this includes paying a $30 rental registration Fee, $30 lead registration fee, and this is in addition to a very active code enforcement agent who's sole task seems to be to find ways to generate revenue for the city (to be fair, most municipalities are using this to generate money for bare city coffers, not just tenant friendly ones). This is in addition to a $300 yearly LLC filing fee (pretty steep, isn't it). It all adds up to one hurdle after another to keep track of in order to collect rents.
And in more landlord friendly Virginia, guess what fees I have to pay? None. Guess what rental registrations I have to pay? None. How about that filing fee? $100 a year to start an LLC, and $50 a year to keep it going. Same thing in landlord leaning Ohio, I really don’t have to work as hard to keep my buy and hold real estate strategy, nor pay anyone any fees to conduct my real estate investing business. So, since Virginia and Ohio can obviously run their state without these extra fees, why does Maryland need so many? I’ll never the know the real answer to that, but it’s clear after going through this process that tenant friendly places can offer a larger amount of day to day headaches, that you won’t see in other places.
Now, I and other investors pay these fees and registrations every year and month successfully, but it’s amazing how much pressure this adds to your operations when you’re a buy and hold investor. When people tell you about tenant friendly states or cities, It was hard to get the full details on exactly what they were referring to. After going through this in different states, it’s as obvious as night and day that this should be taken into account when deciding on your real estate investing strategy.
Lead Paint Rules
This honestly can be a show stopper, and it’s amazing how much pressure is applied to landlords in tenant friendly cities/states than in others. For the state of Maryland, for houses that were built before 1950 (the time frame varies in different states, some are as late as 1978). So first new investor: Pay your fee for signing up for lead registration. Next, decide if you’re going for the lead contaminated dust safety test, or the completely lead free certification. Now the fun starts. For the first, the lead dust test, you are required to not only pay an annual fee to register, but also pay a fee to have another lead dust inspection every time a tenant moves out. This cost can be $165-$200. It’s a constant and the only way to get around this is to do a lead free certification. This one is a test that you can apply for, but if there is any lead to be shown in any of the layers of paint in the house, you need to apply for a “compliance plan” where you are going to prove that you will be using certified lead abatement specialists, which comes at a very high cost. It’s a specter hanging over your head, and both can be painful to deal with in different ways.
In Virginia – I just had to give them a disclosure that the property was built prior to them banning lead paint, and a little pamphlet that told them to be mindful of the dangers of lead poisoning and how to avoid it. The last time I heard, we don’t have a large outbreak of lead poisoning in Virginia, so I guess their strategy works without all the fees. The property I have in Ohio was built more recently, and not subject to lead disclosure laws, but I have the feeling it’s just as easy as doing business in Virginia. Those two properties give me very few headaches from the city and state in my real estate investing strategy.
Nuff said about this right? Turnover is the worse, and the only thing that can make this work is a judicial system that assumes you’re the bad guy as soon as you take someone to court for not paying the rent. What makes it even worse than that, is when deciding on whether a Maryland local court will evict your tenant, they actually have a checklist on their eviction form that they go through to make sure your fees are paid, lead registration is current, and your LLC is in good standing and fully paid for. In my mind, none of those have anything to do with whether your tenants are paying or not paying the rent, but those are the tactics used to make sure everyone else gets paid before you can get justice. Its an interesting difference. Needless to say, the process in Virginia is probably a lot more smoother since those fees don’t exist down here (I haven’t had to evict anyone yet). Amazing the differences in your buy and hold strategy depending on where you invest in real estate. If I knew then, what I know now…
All in all, noticing the absolute difference in how easy it is to invest in a landlord friendly versus a tenant friendly municipality, I can not logically choose to keep investing my money there if I have a choice. And, keep in mind, you can have a landlord friendly city in an tenant friendly state, and vice versa: A landlord friendly state with a tenant friendly city. Real estate is always local.
And, although many investors successfully go through all the hoops, paying all the fees, ensuring they have their lead registration up to date, and collecting rent every month, it’s a hard sell to keep investing there when I have the same profit margins investing in a landlord friendly area that doesn’t require 1/3 or the rules, regulations, and upkeep. At the end of the day, we are all investors that save, scrimp, hustle, and constantly improve ourselves to try to find financial freedom, and if one city has less hassles than others, then it’s a no-brainer on which will be the city of choice to invest in for the future, and how it’s shaping my strategy now.