One of the most severe and crippling blunders real estate investors can make is failing to check if a market is landlord friendly before buying a rental (especially if you are buying from out of state).
This is an often overlooked and seldom talked about issue that can really affect both brand new and experienced investors. Sometimes we take our markets and how easy they are to work in for granted. If you haven’t invested out of state, you might not realize how good you’ve got it. The reverse is also true. Some don’t realize that the grass may be a lot greener for landlords on the other side of the state line.
Related: The Landlord’s Guide to Dealing With Problematic Tenants
So what’s a landlord friendly state? Just how much difference can it make?
While some markets have a good economy, as well as job growth and population growth, you also have to look into how landlord friendly they are.
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States Unfriendly to Landlords Could Cost You BIG
There are several components to this factor. The most commonly recognized of them is the eviction process. In some states, this might take a matter of weeks — and perhaps just a few hundred dollars if the tenants put up a fight. In others, it can be a six-month or longer process to evict a non-performing tenant. And it can cost thousands. If you aren’t prepared for that type of timeline or emergency expense, it can literally turn a positive cash flow year to negative. It may not only destroy the ability to hold and profit from that property, but can also erode your profits on other assets.
Then there is the litigation issue. Some state laws and legal systems just favor tenants over landlords and vice-versa. This can lead to massive exposure to malicious lawsuits and financial issues. States like Massachusetts can be incredibly hard on rental property landlords. They put heavy burdens on landlords to perform even if tenants are not or are no longer even legally occupying the unit.
Do Your Due Diligence
Landlord Station names Texas, Indiana, and Colorado as its top three landlord friendly states. Arizona and Florida are also on the list.
It’s also essential for buy and hold investors to dig in and look at the county and city level too. One disruptive emerging trend in several areas is limiting the number of investors, landlords, and tenants in a city or neighborhood. If you buy a property and only then find out you cannot legally rent it out, you could been reaching deep in your pocket to bail out and find an investment elsewhere. Do your due diligence in advance.
Which are your favorite states and places to buy rentals? Why? Or do you have eviction horror stories to share?
Let me know with a comment!