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.
I love Missouri 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.
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.
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.
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.
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 judgments to personal residences or force foreclosure on them (with some exceptions like mortgages, HOAs, and mechanics liens).
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.