What makes a state landlord-friendly?
If you’re thinking of investing in a rental property, you’ll likely want to look for a landlord-friendly state to enjoy the benefits that will make managing your rental easy and profitable. In addition to laws and regulations that favor property owners, states with higher rental yields and lower vacancy rates are a prime target for real estate investors. In this article, we’ll outline what makes a state landlord-friendly, what considerations you should take into account, as well as the 9 states that are the most profitable and stable for landlords.
To determine the 9 landlord-friendly states for 2023, we identified 6 factors landlords should take into consideration when evaluating where to invest. In addition to policies that support your financial goals, you’ll want to familiarize yourself with the following 6 criteria:
1. Landlord-tenant law: One of the most important factors you should familiarize yourself with is the local landlord-tenant laws. These laws vary from state to state, and could influence how much you’re able to charge for late fees, if you can require interest payments on security deposits, and more.
2. Eviction process: Many tenant-friendly states have implemented laws that make it difficult and time-consuming to evict a bad tenant. A landlord-friendly state will take a more balanced approach and make the process easier and faster for landlords should they need to evict a tenant. Before investing in a rental property, familiarize yourself with the different eviction regulations in place and look for processes that make sense for how you manage your properties.
3. Rent control: Depending on the state, you may be subject to rent control regulations which protect renters from excessive rental rate increases. Certain states, like California and New York, have some form of rent control in effect at the local level while others like Arkansas and West Virginia have no rental control policies at all.
4. Security deposit regulations: Some states limit the amount landlords can collect for security deposits or impose tight time limits to return security deposits. A tighter turnaround time means landlords may need to rush property inspections, causing them to overlook damage caused by tenants and resulting in financial loss.
5. Registration and licenses: Occasionally, a landlord may be required by the state to have a license or registration in order to manage their properties. While this does boost a landlord’s credibility, it also comes with annual fees that could become a financial burden for some landlords.
6. Property taxes and insurance rates: Property taxes and insurance rates vary significantly from state to state and even across different municipalities in the same state. Simply put, lower taxes and insurance rates means landlords can pocket more from their rental properties and is a strong motivating factor for investing in states where the property tax is below the national average. According to the most recent U.S. census data, the median amount for monthly property taxes is $229, while the median property insurance is $83 a month.
The 9 best landlord-friendly states in 2023
Based on the rental factors above, here are the 9 best landlord-friendly states to consider for your portfolio.
1. Colorado
- Simple eviction process. A tenant must pay their landlord any overdue amount for rent or other charges or vacate the property. Tenants have 72 hours to resolve any notice the landlord presents and have 48 hours to move out after those 72 hours expire.
- No rent control. Colorado does not have rent control laws in place.
- No security deposit limit. While there are guidelines for how much landlords can charge for a security deposit, there is no enforcement mechanism so landlords can set their own rates. Landlords must, however, return a tenant’s security deposit within 60 days of the tenant vacating the property.
- No license or registration required. Landlords do not need a registration or license to own and operate a rental property in Colorado.
- Low property tax. The property tax rate is 0.6% of the property value and insurance is, on average, $179/mo.
2. Alabama
- Simple eviction process. Landlords in Alabama can evict tenants for unpaid rent by providing a written, 7-day notice to remediate or leave the property. Landlords must provide a 14-day written notice if they intend to terminate a lease due to a contract breach by the tenant if the tenant fails to remedy the breach within 14 days.
- No rent control. Alabama does not have rent control laws in place.
- No license or registration required. Landlords do not need a registration or license to own and operate a rental property in Alabama.
- Low property tax. Alabama has one of the lowest property taxes in the country, sitting at 0.41% and the average home insurance costing $136/month.
3. Texas
- Simple eviction process. If a tenant doesn't pay rent, the landlord can remove them from the property with a 3-day notice or make a case-by-case decision to allow the tenant to stay if outstanding rent is paid in full.
- No rent control. Texas does not have rent control laws in place.
- Lax rules around security deposit limits. While there are technically security deposit limits, they aren’t enforced and landlords must return a tenant’s security deposit within 60 days of that tenant vacating the property.
- No license or registration required. Landlords have no registration and licensing requirements to own and operate a rental property in Texas.
4. Arizona
- Landlord-friendly legislation. Arizona has favorable landlord legislation for security deposits, leases, and eviction procedures.
- No rent control. No rent control laws are in place in Arizona, and local laws and regulations take precedence over any federal recommendations.
- Low property tax. The property tax rate is lower than the national average, sitting at 0.72% of the property value while insurance is, on average, $106/mo.
