5 Factors That Determine a State’s Investor Friendliness

by | BiggerPockets.com

What makes a state a good place for real estate investors?

There is actually a very big difference in how investor friendly different states operate—especially for landlords. Make sure you know the differences, as well as the advantages and disadvantages, of these markets. These can dramatically impact your annual returns, level of risk, and overall profits.

Here are some of the factors to consider when investing.

Download Your FREE guide to evicting a tenant!

We hope you never have to evict a tenant, but know it’s always wise to prepare for the worst. Navigating the legal and financial considerations of an eviction can be tricky, even for the most experienced landlords. Lucky for you, the experts at BiggerPockets have put together a FREE Guide to Evicting Tenants so you can protect your property and investments.

Click Here For Your Free Tenant Eviction Guide

Evictions

I love Indiana because it takes a little over 30 days from initially filing an eviction to get non-performing tenants out of the property. When you show up to court, the judge generally asks one question to the tenant: “Did you pay the rent?” If not, then the tenant has less than seven days to vacate. Sob stories do not go very far in court. In contrast, I’ve heard that in Chicago it can take up to six months (and oftentimes longer) to evict a tenant depending on how savvy the tenant is with leveraging the system.

States that may be considered better for landlords from this perspective may include Kentucky, Indiana, and Ohio.

landlord-lessons

Friendliness to Businesses

If you are in real estate, you are in business. Some places, such as California, have proven to be very unfriendly to businesses and landlords—and have frequently unleashed rent control along with other limitations on investors. 

Related: 4 Ways Systems Make Landlording Easier, Simpler & More Profitable

Another factor to consider is the cost of doing business in a market. For example, to file and maintain an LLC is very affordable in most markets—but a few are significantly costlier in this area. In addition, procedures to complete certain business activities in some markets can be very slow due to delayed paperwork, which can affect returns on certain projects. Obtaining permits is a prime example.

Taxes

Remember, it’s not what you make, but what you keep that really matters. Some states have horrifically high taxes. They can include state income taxes, high property taxes, and additional fees for landlords. New York and California are two of the most notorious.

Landlord-Tenant Laws & Enforcement

States vary widely on who is favored in legislation when it comes to handling disputes. Some issues that fall into this category include whether the tenant can withhold rent for repairs, how much notice a landlord has to give to evict a tenant, the amount of deposit that can be held, and the financial risks landlords can be on the hook for. For example, Massachusetts is infamous for allowing tenants to sue landlords for large sums for failing to provide full services even if the renter isn’t paying—and may award renters’ extended family members living elsewhere financial compensation for any emotional stress incurred due to a landlord-tenant dispute.

RentersInsurance.com named Texas, Indiana, Florida, Colorado, Arizona and Georgia as some of the best for legal systems that favor landlords. Rent Cafe ranks Arkansas and West Virginia as some of the best for landlords.

limit-liability-landlords

Related: Hobby vs. Business: Do You Have the Right Mindset as a Landlord?

Asset Protection & Privacy

There are also states that stand out as being way better for asset protection and privacy. You don’t want to be a juicy or lucrative target for frivolous and malicious lawsuits. You may not want to hold rental properties in these states and instead register your business there and own a primary residence there. Wyoming and Nevada are two popular choices for incorporating. States like Florida offer strong homestead protection and do not allow creditors to attached judgements to personal residences or force foreclosure on them (with some exceptions like mortgages, HOAs, and mechanics liens). 

Summary

Where you invest can make a big difference in how safe and profitable your investments and personal finances are. Make sure you understand how the laws vary, and set yourself up for success by organizing in, living in, and investing in the best states.

What are your favorite states for investing—and which laws make it easier for you to invest there?

Comment below!

About Author

Sterling White

Sterling White is an investor and business owner on a mission to make the world a better place through principled and efficient real estate investment.

Even before co-founding Holdfolio, Sterling and his partner Jacob Blackett had been involved with the purchasing and selling of over 100 SFRs. Today, Holdfolio is a prominent platform for investing in income producing multifamily apartments. The firm has been featured in national publications such as US News and was ranked as one of the best real estate crowdfunding sites in 2018 by Fit Small Business.

The success of Holdfolio’s technology gave birth to SyndicationPro, a fast growing all in one software solution empowering investors to efficiently and easily raise capital online.

38 Comments

  1. Edward Synicky

    Investors, stay out of South Carolina. They changed the property tax to put the entire weight of the education system on investors. Property tax went up 300% overnight. If you have a mortgage it is almost impossible to have enough cash flow for repairs let alone profit. I have sold 5 homes there all to owner occupants. I am not sure what their plan is when there is no longer any single family homes to rent.

  2. Christopher Smith

    Good Topic.

    I own properties in OH and CA and they are indeed very different. Ohio is reasonably friendly and cash flows are solid. CA can be tougher as there are many more items to be concerned. Which is why I rely on a top shelf PM to keep me out of trouble.

    Not to say CA hadn’t been profitable, it’s actually been hughely profitable because underlying appreciation has been massive, but cash flows are lower, taxes are higher and there is almost an open rabid hostility toward landlords in the state government.

    I have actually found the mix of the two states to be a nice optimal diversified portfolio of risk and return. Very good cash flow with few operational problems from OH, and higher maintenance but red rocket appreciation in CA.

    • Alfonso Aguilar

      Just sold two multi units in Los Angeles Rent control, Gangs, drugs, housing inspections are ridiculous and City sides with them even if you
      Can show evidence they have damaged property or harassed or caused harm to others, even police WILL NOT make a report unless someone is Seriously injured or killed. Had a 5 year old threatened by adult older woman said she was going to kick his A$$ and hurt them bad, cops came wrote his statement down and said if the boy was not hurt then nothing they could do, and she was standing there and walked away laughing even cussing at the cops saying “see nothing you can do about it” 5 Tenant’s moves out the next day scared from death threats it’s been a nightmare she’s throws trash over our fence daily, threw rocks and broke windows slashed people tires which we have video, and cops said nothing they could do, we filed restraint order sherif went to apt to serve a cousin visiting who doesn’t even live there told sheriff she didn’t live here which was a lie, Compton court said sorry we can’t serve a restraint order twice at the same address. So looking at New Mexico and Arizona, is New Mexico Business, Taxes, Landlord friendly? Is there a site that may give more information on percentage or eviction rate. Appreciate any knowledge and info in New Mexico area, Thank You.

        • chris schu

          rogers declared:
          “Sounds like the tenants should have been better screened.”

          Oh, so it’s the landlords fault again.

          Alfonso just described in detail what occurs across the country every day in the inner-cities of America and you blame him for tenant’s criminal behavior.

          Inquiring minds want to know Rogers – are you also in favor of sanctuary cities where more laws are ignored to the peril of landlords and other law abiding citizens?

          Alfonso stated:
          “…housing inspections are ridiculous and City sides with them even if you
          Can show evidence they have damaged property or harassed or caused harm to others, even police WILL NOT make a report unless someone is Seriously injured or killed.”

          Alfonso, congrats on selling and hopefully escaping LA’s anti-landlord biased system.

        • Katie Rogers

          Most tenant problems can be prevented by proper screening. The vast majority of tenants across America are good tenants. It is illogical to consider bad tenants the default tenants because bad tenants are way outnumbered by good tenants.

  3. chris schu

    First, great article Sterling – you speak the truth.

    I’ve actually read about and sat in on landlord/tenant court cases in Las Vegas. It was good too see that judges required tenants to have much more than a sob story to win otherwise they can be evicted in under two weeks.

    One comment stated:
    “I have sold 5 homes there all to owner occupants. I am not sure what their plan is when there is no longer any single family homes to rent.”

    Their “plan” is for rents to skyrocket, working families forced to move out of state, tax revenue to drop, raise taxes on the remaining suckers even higher, and then fiscal crisis mode – complete with finger pointing about how “evil and rich” landlords are. We’ve seen this story play out before.

    Cash flow is the lifeblood of any business. Seems some politicians refuse to understand this most basic business principle. When it comes down to it, redistribution of income through overbearing government regulations and legislation will kill investors in some states. It’s a sure way to force investors to subsidize tenants – typical nanny-state policies.

    Another comment said:
    “…almost an open rabid hostility toward landlords in the state government.”

    Why are we not surprised. These days many federal, state and local arms of the government are partisan and have no shame in their socialist game.

    One might not wish to bring politics into it but reality is reality. Take the facts (states listed) Sterling included in his article and then look at a political map (Red vs. Blue) of the USA and you’ve found the answer to the problem.

    Again, great article.

  4. Katie Rogers

    You are correct, Sterling’s states and the red/blue divide have an imperfect correlation. You are also correct that red states tend to amplify the already great power differential landlords hold over tenants. You are also correct that this is a problem.

  5. Patrick Huey

    I have to take issue with some of the points made in this post. Yes it’s true that New York and California have high taxes, a lot of regulations which can be onerous to landlords, and some savvy tenants who can game the system, but they also have high population density which requires a lot of multifamily housing, a lot of real estate speculators who claim to be investors, and landlords who are quite frankly slumlords. They also have lots of jobs and a large number of people clamoring to live in those areas compared to Indiana, Ohio, and Arkansas. While there are some points to be made about high taxes and how much cash flow a landlord takes home at the end of the day, the reality is a smart, savvy real estate investor can make good money even in the most high priced and high taxed markets. The problem with the markets these days is that nearly all of them are highly overvalued, and it’s getting more difficult to invest in anything that will produce a reasonable return on investment or even positive cash flow, and that’s mainly due to speculation by foreign investors and by those looking to create Airbnb rentals.

  6. Tim Sabo

    Fellow Landlords: There’s a good reason Pennsylvania has over 300,000 blighted, tax delinquent, or abandoned properties: it is hell on landlords.

    We invest here because it is our home, but advise others to take their investment dollars elsewhere until PA changes many of its crazy laws. In PA, owners are responsible for the unpaid water and sewer bills of the tenant: the state will actually put a lien on your property if you don’t pay the unpaid water/sewer bills left behind by tenants. But it gets better…

    Tenants know they can simply pull up and move and there is little a landlord can do. Oh, sure, you can spend more money going to court to file-and WIN-judgments against slacker tenants, but good luck collecting on the judgment. Why we have civil courts in this state is beyond me: all you can do is attach the slacker tenant’s wages, but they will simply quit that job and get another one, then you have to start all over. As a member of the local landlord association, I have fought for changes to these laws, inviting state legislators to meetings to address the problems and offer solutions, but no progress has been made.

    Crazy laws, no incentives, and increasing tax burdens-to deal with the rising blighted property fiasco-all clearly state that Pennsylvania is at or near the bottom of states to invest in rental properties.

    • Katie Rogers

      I cannot say that I have lived in every state, but I have lived in several. The water and sewer bill is bundled into the rent, but the water and sewer is always in the landlord’s name, never the tenant. Just put the tenants on month-to-month leases, and you never have to worry about a tenant skipping out on several months of a lease. Happy tenants will stay for years on a month-to-month.

      • Tim Sabo

        In PA-until recently-that is how the local water authorities set up customer accounts. The point I made, and still have trouble with, is the PA law that makes the water and sewer debt the legal responsibility of the owner. This debt can be included in your judgment against a tenant, but you will never collect it in PA.

        I did not mention lease lengths, which is not an issue. We are not troubled getting slacker tenants out, whether they be on M-T-M or Year-long terms. What we DO have a problem with is once they are evicted, once you win the judgment in a civil court in the state of PA, as a landlord you have very limited means (wage garnishment) to collect that judgment. Being unable to collect judgments turns a temporary debt into a permanent loss, leading to many good, smart landlords quitting or going out of the business in Pennsylvania. This leaves more properties blighted and unwanted, except by slumlords, which are more than happy to rent to anyone. What we have witnessed here is the house-by-house destruction of neighborhoods, and neighborhood-by-neighborhood destruction of towns and cities. Pennsylvania now charges fees (taxes) for every mortgage or deed, and uses that money to tear down blighted properties, instead of fixing the broken, silly laws that helped created this mess.

      • chris schu

        ” Just put the tenants on month-to-month leases, and you never have to worry about a tenant skipping out on several months of a lease. ”

        Did you even read Sabo’s fact filled comment? MTM isn’t gonna cut it.

        “…you never have to worry about a tenant skipping out…”

        LOL! In what jurisdiction is that utopia?

        • Katie Rogers

          You are responding in bad faith when you use ellipses to completely change the meaning of what I said. When tenants are on a MTM, they don’t feel the need to skip out on months of a lease because it easy to give a 30-day notice and then leave. It appears that you and Sabo share a basic disdain for tenants.

  7. chris schu

    Did someone say “…house-by-house destruction of neighborhoods, and neighborhood-by-neighborhood destruction of towns and cities.” ?

    FACTS:

    Four women (hard-left socialists) won their respective primary races in the Pittsburg and Philadelphia area under the Democratic Socialists of America party earlier this year.

    Isn’t the socialist mind-set sweeping across the counrty destroying one neighborhood after another since the obama administration wonderful?!?!

    This backs up my original comment (redistribution of income) to Sterling’s article and supports similar facts posted by other commentors. Nonetheless, all we see is more blame being laid at the feet of landlords when tenants behave badly.

    Beware investors, take you losses and get out now before any remaining equity in your properties ends up disappearing as happened in entire areas of Detroit.

    Truth can be a hard pill to swallow – get out or go bankrupt.

  8. Katie Rogers

    Question; When income is redistributed upwards, do you still have a problem with redistribution? Which neighborhoods specifically were destroyed by “the socialist mind-set”? The economy has been on a positive trajectory since 2009. Lots of landlords behave badly. My community just put all the property of a prominent poorly-behaving landlord here into receivership.

    • chris schu

      Sorry to hear your distain of capitalism.

      Economics 101 proves that free markets rule capitalist societies while overbearing “fair share” left wing government dictators that redistribute income (ie. STEAL) rule socialist societies.

      Oh, you never gave an answer to my original question in the comment you replied to, which was:

      “‘…you never have to worry about a tenant skipping out…’ LOL! In what jurisdiction is that utopia?”

      So, I ask again, where are all these perfect angel-like tenants hiding en masse?

      Anyone?

      Who in the entire universe of landlording across the vast USA has “never” had to worry about a tenant “skipping out”???

      • Katie Rogers

        What disdain of capitalism? It is unnecessary to setup two boxes and get all acrimonious towards whom you wrongly perceive is not in your box. I stay out of boxes, so I tend to get in trouble when I talk about capitalism with someone as politically tribal as you are but their favored box is socialism.

        You are not getting answers because you are not asking in good faith. There is no need to respond to your bad faith misstatements of what I said., or by setting them in unrealistic contexts.

  9. chris schu

    “…it easy to give a 30-day notice and then leave.”

    Wow…that easy you say? Hmmm…ever hear of illegal hold over or read any of the multiple tenant nightmare articles here on BiggerPockets?

    As Sabo accurately pointed out, the main reason slums develop is due in part to the PA situation he personally has dealt with. Also, when tenants cause tens of thousands of dollars worth of damage to properties after they are evicted for not paying after two months on your suggested MTM lease fiasco, landlords go out of business since they are unable to collect – even with a court order.

    So, where’s this “bad faith” you preach of?

    • Katie Rogers

      On a MTM it is easy for the tenant to give a 30-day notice and leave. Once in a while stuff happens. Landlords who treat their tenants by the Golden Rule do not often have stuff happening to them. The vast majority of tenants are fine.

      We do not have slums in my community, but we do have some slum properties. A few months ago council has put some of those properties in receivership because the landlord refused to fix them to habitability standards. He was threatened with with receivership two years ago, but went out and bought more properties instead of repairing what he had. The vacancy rate is so low here that normal competition is not enough to put him out of business. The city has set their sights on a few more of our local slumlords. Slums develop because the the broken window syndrome. Landlords are unreasonable when they expect tenants to care more about the property than the landlord does.

  10. Tim Sabo

    Whoa, Schu and Rogers, where have you both gone?

    This article, and the corresponding comments are about those states that fail to attract investment dollars due to certain key factors. It is NOT about whatever you two are fighting over.

    Ms. Rogers, you are ill-informed about my ‘disdain’ for tenants; my use of the term ‘slacker tenants’ refers to those who treat landlords like a doormat through their irresponsible behaviors, disrespect for rules-based living, and a total lack of reliability in paying rent and utilities. You failed to understand the comment I made, so I tried to clarify it, yet you persist in arguing for some month-to-month dogma that may work for you, but has no impact on the facts I’ve stated occur here in PA.

    Mr. Schu, while you attempted to defend my comments, your attack on Rogers and constant political-based attack show you have less interest in learning the landlord trade, and more interest in trying to redress your own grievances. Thank you for the defense, but I don’t need, nor desire, that type of hate-filled support.

    Both of you are acting like children; naive and unwilling to listen to each other. This forum is designed to help landlords help each other: it is not a platform for your anger issues. Please, either change your approach or change your forum.

    • Katie Rogers

      I understand your comment, but I think you are not really understanding the dynamic there in PA. I have experienced some “slacker” tenants, but they have been few and far between. The Golden Rule really works.

      My point on MTM leases is that tenants often feel trapped by annual leases. Tenants are more likely than homeowners to be in somewhat unstable financial situations, especially in the neighborhoods you seem to be alluding to. The jobs they have pay less than median wage, and they are always subject to lay-off with little notice. When their circumstances change, maybe an accident lands them in the hospital, or they are laid off or whatever. Maybe they got a new job in another town or state, In any case, most tenants do not have the money to pay the balance of the lease. With a MTM, they just give notice and leave. With an annual lease, they may just leave anyway because reasonably what else can they do? If they do not pay their utilities, their lights and gas will be shut off. In most communities, (but perhaps yours is an exception), the landlords is responsible for keeping the water and sewer service regardless of whether the house is occupied or not. I am not sure why you think you should be able to go after a departed tenant for water and sewer.

      An aside: I know a landlord who loves lease-breakers. He will “kindly” let them out of the lease for two months rent. He immediately rents to someone else. “I get two months of double-rent ,” he crows.

  11. Vanesa Gonzalez

    Great article! I live and invest in Florida but I am thinking about diversifying my portfolio and investing in other states. Most of my properties are in Miami and the property taxes are killing our cash flow! I am actually happier with my investments in Jacksonville, property taxes are reasonable and most tenants take care of the properties.

  12. chris schu

    Politics is REALITY in the RE game.

    Where do you think all the legislation comes from that directly affects ALL arenas of RE?
    Where do do you think the IRS gets its authority from?
    Do you know what “Schedule E” is used for?
    Who do you think determines local property taxes?

    Here’s a clue – POLITICIANS!

    Taxes, regulations, landlord/tenant laws, etc. are ALL determined by politicians at ALL levels of government.

    Sterlings article directly speaks on the issue of states that are or are not friendly to landlords, RE investors, etc.

    States make LAWS that come from…wait for it…POLITICIANS…who are in the business of…yep…P-O-L-I-T-I-C-S. After all, YOU are the one playing politics when YOU declared:

    “I have fought for changes to these laws, inviting state legislators to meetings to address the problems and offer solutions, but no progress has been made.”

    NO progress you say?

    Well, golly gee, what did you expect after wasting your time with POLITICIANS (“state legislators” in your words). You’re not a big time lobbyist…they don’t care about your opinion. They clearly want votes from the handout crowd who love biased laws in favor of tenants.

    Furthermore, you allege “…your attack on Rogers and constant political-based attack…”

    Attack:
    verb
    1.
    take aggressive action against (a place or enemy forces) with weapons or armed force, typically in a battle or war.
    noun
    1.
    an aggressive and violent action against a person or place.

    When and where did this “attack” take place?
    Clearly, you trigger easily when facts are involved. Bad trait to have in the RE game. Spew your fake “attack” allegations on someone else.

    BOTTON LINE:

    YOU and YOU alone are responsible for YOUR own RE losses.

    Stop complaining about the socialist government in PA and the “destroyed” houses and neighborhoods since YOU decided to play in that money losing sandbox.

    The biggest failures in the RE game involve those who ignore FACTS and aimlessly throw good money after bad based on their FEELINGS and “good intentions”.

    Have fun being bitter over your current and soon to be endless RE losses in PA where four women POLITICIANS of the Democratic SOCIALIST Party recently won in the Philly and Pitt area!

    Here’s an infamous RE maxim for ya:
    Location, location, location = Politics, politics, politics.

    Ignoring reality will eat your equity (if any) alive and destroy your cash flow.

    No cash flow = no property.

  13. Jacqueline Beharry

    Here’s my two cents…
    Vet your tenents carefully and do not get desperate to rent until you find one that you like.
    Treat them with respect by fixing everything promply.give them breaks if they are late infrequently
    and try to work with them.
    The problem i see with a lot of realestate investors is they try to gouge these poor people who are already paying over half their salary in rent to pay investors with no liquidty trying to get richquick.
    I own 7 properties bought over in the crash over and01.by living within my means i paid cash.all my tenents are original .i have. Only raised the rent once.only had one late payment in January and told the tenent i understood coming right after xmas.
    This business of late fees of sometimes over $300.00 by the institunal investors on wallstreet Is upsetting and leads to the retaliatory behavior.

    • chris schu

      Well looky here BiggerPockets community…

      “The problem i see with a lot of realestate investors is they try to gouge these poor people who are already paying over half their salary in rent to pay investors with no liquidty trying to get richquick.” – by jacqueline beharry.

      Hmmm, again…

      “The problem i see with a lot of realestate investors is they try to gouge these poor people…”

      So…there you have it per beharry’s comment, it’s mostly your fault BiggerPockets (landlords, investors, etc.) that units under your control are destroyed by tenant’s criminal conduct since you’re allegedly “…trying to get richquick” according to “Beharry” and “Rogers” who supports this diabribe with an “Exactly” reply.

      Very interesting, to say the least.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here