@Shriraj Shah
I like to think of this in terms of first and second order regulatory concerns. The first order concerns are things that will affect your operation, directly. The second order concerns are things that tend to have an indirect effect, but are not as explanatory in a simple model. Second order concerns are usually things that will affect your tenants more than you.*
First Order Concerns
1) Ease of eviction: This can be somewhat subjective, but you can get a lot of information on lists like this. No matter what people tell you, you are going to evict someone, eventually. It can take 2 weeks or it can take 2 years.
2) Permitting & environmental standards: Particularly relevant if you are running your own rehabs. Even if someone else does it, you'll still pay the cost downstream.
3) Property taxes: This is a serious concern that I see a shocking number of newer investors ignore. Granted, it can be a double-edged sword. For instance, you could pursue a strategy where you are targeting great school districts, and thus accept a higher burden. That said, the way different states and counties deal with this is incredibly variable. This is a key reason that many coastal markets are out of consideration from a cashflow perspective.
Second Order Concerns
1) Income taxes: Your tenants will be paying this, if it's high, it's an incentive to move. This is a particularly strong issue in border areas right near a state line. The NYC metro area has found a way around this, but you're much more likely to see this issue upstate near the Pennsylvania border, for instance.
2) Corporate taxes: In most strategies, you'll want tenants that have jobs. A tax code that is a disincentive for corporations to locate in the community will have a long-term effect. Here is a story on this problem in Kansas City, it's a humorous take on what can happen with companies and incentives. I would be cautious of communities that are on the high end of the corporate tax range. California definitely has this problem.
3) Growth / Business friendliness: This is a concept that is tossed around a lot, and often-abused by enterprising politicians. Generally speaking, you want to target communities that welcome growth of all sorts, and are willing to make the necessary tradeoffs to support it, occasionally at the expense of entrenched interests. The economics tend to be efficient enough to discourage investors from looking at these communities, but I would be careful about warning signs when it appears that politicians and local entrenched (often called NIMBY) interests are conspiring to 'keep things as they were'. This holds down inventory, but is not a good long-term trend for any economy in my humble opinion.
*This advice is for buy & hold rental units. Flips, new development, short-term rentals, and other verticals behave a little differently depending on the incentives provided by the regulations.
