The Worst States to Invest in Rental Properties

The Worst States to Invest in Rental Properties Based on Landlord-Tenant Laws

Not all states treat landlords and tenants equally. Some tend to favor landlords over tenants, some tenants over landlords, and some are relatively neutral. As landlords, it helps you to know them so you can make the right decisions and invest in the right places.

Generally, Southern states tend to favor landlords, while Northern states are the opposite. This discrepancy is due to our early days before the country had even existed. In the Southern states, people were primarily agricultural landowners - so laws tend to still favor landowners and landlords. Today, however, the separation isn’t as clear-cut. These days, there are a lot of different federal and state laws that apply to landlords and tenants. Since they can be confusing, we’re diving into them today.

Each state has landlord-tenant laws that cover items such as:

• - Eviction timing & procedures
• - Security deposit limits
• - Late fee limits and required grace periods
• - Returned payment fee (NSF fee) limits
• - Required advance notice before landlords can enter properties

In this article, we’ll show you which states tend to favor the renters since you might want to limit your investment plans in those rental properties.

Overview of Landlord-Tenant Laws in the US

RentCafé has provided a map that evaluates how renter- or landlord-friendly the state is on housing laws. The ranking system focuses on the following aspects:

• - Security deposits
• - Rent increases
• - Warranty of habitability
• - Eviction notices

Based on the ranking, Arkansas and West Virginia are the most landlord-friendly states. Following closely behind are Louisiana, Georgia, Wyoming, North Carolina, Idaho, Ohio, Mississippi, and Colorado. On the other end of the spectrum, Vermont is the least landlord-friendly, along with Delaware, Hawaii, Rhode Island, Arizona, D.C., Maine, and Alaska.

Here’s the overview map they’ve provided:

Source: Planetizen.com

The 6 Worst States with Tightest Landlord Laws

Of course, not all of the renter-friendly states are disadvantageous to the landlord. But most of them do have laws that prohibit landlords from doing many things (e.g., raising rent). If you don’t want the government to control too much of your investment, here’s a list of the states where it can be difficult to be a landlord, and exactly why: 

Washington State: Washington State Supreme Court ruled a policy called the “first-in-time (FIT) rule” or first-come, first-served law in Seattle. This law requires landlords to rent to the first qualified tenant who applies, not choose the best applicant overall.

While the FIT law is anti-discriminatory, not having complete control of which tenant you accept can be a great hindrance to you. For example, if the first applicant barely meets your qualifications, but then the 2nd or 3rd applicant far exceeds them, you have to accept the 1st one - who may end up defaulting on their lease.

Seattle also makes it difficult to evict moderate-income and low-income tenants between December 1 and March 1. Not a good situation for a landlord with a mortgage to pay.

New York: The Big Apple has many rent laws that you have to keep up with to remain compliant. In New York, there are different rules and regulations depending on the type of rental property building it is (e.g., a co-op, condominium, sublet, or rent-regulated area).

New York’s Rent Guidelines Board cover restrictions such as:

• - The duration of the rental lease
• - The property category (if the unit is considered a residential place)
• - The fees for background checks, managing applications, late fees, and security deposits
• - How much rent you can charge and any increases of rent amounts

These rules largely affect the bottom line of the revenue you’ll generate, and put limitations on your investment strategies. For example, you can’t simply adjust the rent account based on market conditions or raise rent to upgrade the unit.

Oregon: Speaking of rent regulations, the Beaver State recently implemented a statewide rent control policy in 2019. Landlords are mandated to follow laws, such as:

• - Not raising the rent more than 7% (in addition to inflation) annually
• - Evicting tenants only when there is a just cause, a lawsuit, and a victory over the case 
• - Depending on the case, tenants could receive 90 days’ notice and one month of paid rent before the eviction process begins

Moreover, landlords who fail to comply with state laws have to pay their tenants up to three months' rent in damages. So if you want to invest in Oregon properties, you undoubtedly have to evaluate the pros and cons of rent control.

New Jersey: While the Garden State does not have rent control or rent regulating laws, it allows municipalities to adopt their own ordinances to control rent increases. You’ll have to be familiar with the local regulations before investing in a property in New Jersey.

Furthermore, the state has the following acts to keep in min

• - Rent Security Deposit Act: This act governs security deposits, allowing you to charge the equivalent of one and one-half months’ rent, but limits any annual security deposit additions to a 10% increase versus the current amount.
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• - Landlord Registration Act: Under N.J.S.A. 46:8-27 and N.J.S.A. 55:13A-1, you need to register your properties with the state. This often comes with a registration fee.
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• If you own two residential units or fewer, the registration is through the municipal clerk. More than that (e.g., if you own three or more residential units in one building) and registration is via the Department of Community Affairs (DCA

Landlords in New Jersey also regulate other rent-related issues like late fees, rent increase notices, and how much time a tenant needs to pay rent debt before you can file an eviction. In both cases, it’s about 30 days, in case you’re curious.

California: The Golden State also has statewide laws for rent and eviction in many of its cities. You’ll need to be familiar with how much you can charge for security deposits and credit checks, the criteria for filing evictions (just-cause only), and if you’re allowed to run criminal history checks. Some rules also protect tenants receiving government subsidies.

The state also requires you to offer and maintain habitable rental homes. Should you fail to comply, your tenants can sue, withhold rent, move out without notice, call up health inspectors, or exercise their right to “repair and deduct” to solve essential repairs (e.g., a burst water pipe).

Maryland: Lastly, the Old Line State has rent control ordinances in certain jurisdictions on top of their statewide law that regulates late fees and notices given to tenants before raising the rent. The state also has registration policies that require an annual fee.

Unlike other states, Maryland has rules on how long an eviction takes in Baltimore. Evictions need to take at least 60 to 75 days, compared to other states where evictions are processed in just two weeks.

You may find other states that have similar limitations, so it’s important to do your own research as well. My advice is to steer clear from these if you can, but if you can’t, make sure you know the laws so you can follow them.

Conclusion

Now, it’s important to remember this list is not exhaustive. There are many other rules in these more renter-friendly states that you’ll need to be familiar with before investing in rental properties. Nevertheless, we hope this list gives you a glimpse of the states with less-than-favorable regulations and helps you think critically before expanding your portfolio.

Any other important regulations we’ve missed? Do you have another state in mind that has strict landlord-tenant laws? Drop them in the comments below to help others out.

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