BiggerPockets Real Estate Podcast - Would We Ever Invest in Tenant-Friendly States?

Starting point is 00:00:00 Is investing in a tenant-friendly state a deal breaker? Or are investors who avoid them leaving money on the table? Landlord tenant laws vary dramatically across the country. Eviction timelines can range from a few weeks to over a year. Rent control can cap your cash flow, and permit restrictions can slow down your rehabs or stop them completely. But there's also a flip side. The states with the strictest laws are often the most desirable places to live,

Starting point is 00:00:30 They have strong demand, strong rent growth, and strong appreciation. So today, we're breaking it down. What makes a state landlord or tenant friendly? Which states are the best for investors? And what can you do to protect your portfolio if you're already investing in a tenant-friendly state? If you own rentals or you're about to buy your first one, this episode could save you a lot of money and prevent a lot of stress. What's up, everyone?

Starting point is 00:01:02 I'm Dave Meyer. He's Henry Washington. We're the co-hosts of the Bigger Pockets podcast. Henry, how are you? What's going on, man? I'm excited to talk about this because I technically live and invest in a landlord-friendly state. But every time I look at lists of the most landlord-friendly states, my state doesn't make the list. And so I'd like to dive into a little bit about why I think this is landlord-friendly and why or why not that actually matters. All right. So, Henry, what are some of the factors that you think about? when considering whether a state or a city is landlord-friendly or tenant-friendly? What comes to mind for me, and I think what comes to mind for a lot of investors when they're

Starting point is 00:01:41 considering markets and debating whether it's landlord or tenant-friendly is they're thinking about evictions. So how difficult is it going to be to get a problem tenant out of your property? Like, that's what people are typically worried about or focused on. But you're right. That's just one factor, I think, that makes up whether a market is tenant or landlord-friendly. Yes, eviction speed is important because if you have a bad, non-paying tenant and you're in a market that it takes a year to put them out or more, that's a lot of money. You could be leaving on the table. I was just talking with someone who has a tenant whose rent is $4,000 a month, and it takes a year to evict them there in the state of New York. That's 50 grand. That's a crap, ton of money.

Starting point is 00:02:29 That's insane. Yeah. So important variable. Right. Yeah, absolutely important variable. But I think people only think about this one variable when they're trying to select a market. And there are so many others that even if this variable is in your favor in the market you choose, if several of these other variables aren't, you could still find yourself in a position you don't want to be in. So evictions are just a part of the process.

Starting point is 00:02:54 You also have different rules around what kind of notice a landlord is required to, give a tenant before the eviction process starts. So the eviction process is truly like an official process. But the eviction process can't start until you have given the proper amount of notice. And so if you're in a state that has short timelines around giving notice, then that can help you get to the eviction process sooner. If you have to give a lot of notice to people, that just adds to the delays because the eviction process hasn't even started yet. You're just dealing with the notice, which is like the precursor before the eviction process starts. And then on top of that, there are states that have what they call just cause rules. Landlords have to have just cause

Starting point is 00:03:42 to put a tenant out essentially. In other words, you can't just go, hey, I changed my mind and I want to sell this property. So I'm canceling your lease in the middle of the lease in certain states. In some states, you can. So some of these just cause rules can really put hand. handcuffs around landlords. But in all honesty, I think just cause rules are like their tenants should have some protections if they're living in a place. Like I think that's a good thing in my opinion. Like you shouldn't just be able to put somebody out for no reason. But it is something you need to pay attention to. And then I think the other big one people think about is rent control. Oh yeah. There are some states where you can only charge a certain amount of rent within whatever the

Starting point is 00:04:23 market rents are. And then once that rent is set, you then are only are. You then are only. only allowed to raise rents by a certain percentage in those markets. And those rules can vary from state to state. Just to add some sort of data to what Henry was saying, like, if you look at Texas, Florida, Ohio, Georgia, their notice range for eviction is only three days. That's Arkansas as well. That might be a little short. To me, like, I get why they are. I wouldn't be worried personally about investing if they said you have to give two weeks notice. Yes, I think that there's some intricacies though, right? So in a lot of these markets where you can give three day notice, there are situations where you can and situations where you can't. So like in Arkansas, I can give you a

Starting point is 00:05:13 three day pay or quit, but only if you've not paid rent, right? So if you've not paid rent or violated the lease in some sort, then I can give you a three day pay or quit. And then that gives you three days to either get caught up or then I can start the eviction process. But if you're paid up, right, and I want to evict you for some other reason, I can't just serve you a three-day notice. It's got to be a 30-day notice. So that makes sense. That seems somewhat reasonable to me. I personally, like, I live in Washington State that is sort of on the other end of the spectrum. I think the key thing here is like, you know, when I talk to James, he owns a lot of rentals here, you just have to underwrite it.

Starting point is 00:05:57 Like he plans for this stuff, right? You know, if you own a multifamily, right, and you own 30 units, like you're probably going to have a non-paying tenant at some point. So you just have to underwrite that into your deal, which is why I wouldn't think about it so much, just prepare for it. I wouldn't be a deal breaker for me. It would only be a deal breaker for me if I underwrote it with a higher vacancy. Like, it's essentially just another form of vacancy, right?

Starting point is 00:06:22 Correct. So it doesn't work with that higher vacancy rate. Then I just wouldn't buy the deal, but I went right off an entire market because of this personally. I mostly buy singles and small multifamily. So if I'm underwriting a deal and it's in a market where timelines are longer to evict a tenant, I'm going to prepare for the worst case scenario because as a real estate investor, a lot of the times we're getting good deals because a current owner wants to get out of a headache. Right?

Starting point is 00:06:53 So they may know, yeah, I got a problem tenant in here. That's why I'm selling you this property. You got to deal with it. That's a good point. And I'm going to give it to you at a discount. So you underwrite it so that you prepare. Like if it's going to take you a year, well, how much is rent? How many months are in a year?

Starting point is 00:07:09 Add that up. Add it into your underwriting so that you can take care of it when the situation comes. Like plan for the worst case scenario and your underwriting. Then if you get it handled in just a couple of months through some other means, great. That's more cash flow, more return. your investment for you. I will just say, like, if you are concerned about eviction timeline, like there is big differences in here. Like, I sort of worked with AI here to sort these states into buckets. And what you see is there are states where the notice period is three days,

Starting point is 00:07:41 total timeline to evictions like three to six weeks. And those are some of the states I mentioned, Texas, Florida, Ohio, Georgia, Mississippi, Arkansas, Iowa. You know, it's a lot in the southeast and the mountain west. Then on the total other end of the spectrum, there are a couple states that are just very slow. It could take up to six months in states like New York, New Jersey, California, Connecticut, Rhode Island, Vermont, Hawaii. Everything else is like kind of in the middle. You know, it's like you're somewhere between four to eight weeks. Like most states are kind of in that range. So if you are curious about this for your own market or markets that you're going into, check this out. Because I think that's the key to what Henry and I are saying. It's like,

Starting point is 00:08:21 If you go into it eyes wide open, knowing what the process is, you can mitigate that risk. But this is a considerable issue for certain people. And if you just want, for example, if you're a turnkey investor and you don't want to get into some of the hairier parts of property management, you might want to go with some of those states that have a faster processing time. And when you look at that list, a lot of those markets that are more tenant-friendly markets are also markets where you get eligible. lot more appreciation where there's more demand. People want to live in New York and they want to

Starting point is 00:08:58 live in California and coastal areas. And there's a lot of kind of a, what's James call it, juice. There's a lot of juice. Yeah, it's got a lot of juice. Got a lot of juice in those because you get a lot of appreciation. And like real true wealth is built through debt paydown and appreciation. Right. So like if I, if I'm thinking about investing in one of those markets, yes, I want to underwrite the deal appropriately so that I can afford to take care of whatever tenant situation I may be walking into, but that isn't all of the tenant situations that you may have to deal with. You may also put your own tenant in there after you take care of a bad tenant. And that tenant doesn't turn out well.

Starting point is 00:09:34 And then you could go a whole other year where you're not getting rent. And so it's not just planning for the tenant situation you're dealing with when you buy it, but it's planning like, how do I operate this? One of the correlations you see is in a lot of the states where they're quote unquote tenant friendly, they also have a lot of supply constraints. They don't allow development. You know, if you look at cities like Seattle, it's very hard to develop or San Francisco or New York. Or there's just not enough room in a lot of those places to develop stuff. And that pushes prices up.

Starting point is 00:10:05 So it's just, again, all of these things are tradeoffs. There are two other regulatory things I want to talk about, which is really. rent control and another one that I don't hear people talking about, which is rental licensing, but we got to take a quick break. We'll be right back. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen pipes, icy walkways, and seasonal wear and tear can increase the likelihood of claims. And traditional insurance companies aren't always built to handle these claims quickly or smoothly.

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Starting point is 00:14:29 Henry and I are here talking about the best and worst landlord states. People always ask me about this. What is this state landlord-friendly? Is it not? I think as we're discussing this, we're seeing it's not, so black and white. There are regulations that you need to understand and mitigate, but it's all about finding the regulatory and return environment that is comfortable for you because regulation and returns don't always match. The markets with the strongest regulations don't necessarily

Starting point is 00:14:57 have the worst returns. Sometimes you see quite the opposite. So we're breaking down individual issues to help you understand what markets might align best with your strategy. Before the break, we talked about sort of like the bad tenant mitigation situation, but I want to talk rent control. And I'll just say, I am not a fan of rent control. I think there are almost no issues that every single economist I've ever read hates, but rent control is one of them. It's pretty tough to find a single academic study that supports the idea of rent control. In fact, most studies show that it increases rent. I'm not going to get fully into this, but there's been many studies that show that rent control decreases the supply of rental properties, which means there's less

Starting point is 00:15:49 rental units out there, and more people are competing for fewer rental units, and although it can decrease or hold rent steady in the short run, long term, and there have been many, many studies of this, it shows that it pushes up rents. So for me, rent control not only impacts you as a business owner and the flexibility that I think you should be able to have to have pricing on your units, but it doesn't even help the people that was intended to help. Like, why is there rent control? It's a whole other topic. It's obviously just politically expedient for people. Like, they like the idea of it, but it's easy to sell the idea of it, but it doesn't work. Yeah, that's what it is. And so I just don't like it. And I would be hesitant to invest in places with

Starting point is 00:16:33 rent control personally. People like it. Because, Politically, it's a way to get you some votes quickly because what people hear is if I'm a renter, rent's going to be cheaper. So I'll vote for that, right? They don't truly understand the impact of what it is that they're voting for. And don't get me wrong. I think rents should be affordable. I think landlords have a role to play in making sure that rents are affordable. I also think states, local government and the federal government have a role to play.

Starting point is 00:17:05 to play in making sure that rents are affordable. I just don't think rent control is the solution. I agree that I am not advocating for maximizing rent in every scenario. In fact, I think we've talked about a lot of times that I think raising rents modestly is actually a good win-win business strategy in many, many scenarios. The reason when we're talking about landlord-friendlyness, tenant-friendlyness that I would be hesitant to invest in one of these markets is one, a lot of times what rent control incentivizes landlords to do is raise rents more than they need to when they have turnover because a lot of the laws are that you can't raise rents on an existing tenant, but if there's turnover, you can raise rents. And so what the studies show is that landlords then

Starting point is 00:17:59 go above market rate. Yeah. Because they know if that tenant is going to stay in that unit, they need to mitigate the risk of not being able to keep up with expenses. And so they have to go above market rate, which is just worse for the tenant. And so like, this is a reason I don't want to be put in a position where I have to be thinking about that. Yeah. The other thing is like rent control doesn't work. Anyone who's intellectually honest and looks into it can see that it does not work. And so investing in a place where politicians are doing that just to get votes doesn't bode well, in my opinion, for what the regulatory environment is going to be for real estate investors

Starting point is 00:18:38 in general. And so those are the reasons why I would consider rent control pretty seriously in your analysis. And as I was researching for this episode, just about rent regulation and where these things are happening, what I found was that the National Apartment Association was tracking around 172 rent control bills. That was back in the spring of 2025 and 131 active bills in the fall of 2025. And so these are potential rent control bills that are being looked at. Now, most of them aren't being passed, but that's a lot of volume of that tells me there's a lot of politicians that are lobbying for some sort of rent control. For sure. You know, I've heard about rent control since I started investing in real estate, and I haven't seen a lot of markets where it actually

Starting point is 00:19:28 gets passed. But this research shows me that there is a lot of markets that are strongly considering it so much so that they're drafting bills, even though they may not be getting past. Politicians are reacting to the reality that rents are unaffordable. And that's hard. But the solution is to build more supply. Like, that is just the solution. Unfortunately, Unfortunately, because of the way elections work in this country where people are reelected every two to four years, and because it takes probably five to ten years to effectively build more supply, politicians don't focus on that. They focus on rent control.

Starting point is 00:20:04 But I digress. Anyway, this is something you think about in your analysis. One other thing I never see on these lists, but I have encountered in at least two of the markets I invest is in rental licensing. Do you have that? No. This is something that exactly. in Denver, it exists in Michigan in certain places, but in certain markets now, you need to

Starting point is 00:20:28 apply for a license to be a landlord. And the idea, at least in the two markets I invest where I've had to apply for licenses, it's basically they send an inspector out to make sure that the property is safe for, and they collect a fee, obviously. I'm also fine with them making it safe, but it is another thing that you should factor in because I've had fine experiences so far. But just like with an inspector or an appraiser, you kind of don't know what you're going to get with some of those things, right? That's so true. And so I've heard from my property manager, like I had one done a couple months ago and they were like, man, you got lucky. I thought they were going to tell you to change all these things. But like, the property is safe. Don't get me wrong. But like,

Starting point is 00:21:18 Sometimes you meet a persnickety person who all of a sudden you buy a rental property that you thought was turnkey. And now you're investing 10 grand into renovating that property. So this is something that has become more popular in recent years. Just like, you know, in a lot of places, short-term rentals, you now need a license or you have to pay a fee. Well, I just want to make sure that we define some of these words for our listeners so they don't get confused. Could you give us a definition? maybe a facial expression of what persnickety is. I feel like I just outed myself as like an 1880s old grandpa.

Starting point is 00:22:00 Just saying persnickety. So, I mean, I think this is something to consider when you're evaluating landlord-friendliness. Because, again, like everything, there is a spectrum. You know, in Denver, for example, I think it's like 200 bucks to get an inspect. You don't need an inspection every year, but you do pay an annual fee per unit, but it's cheap. It's like, I think it's like 30 bucks a unit.

Starting point is 00:22:24 So like it's not onerous. But, you know, in Baltimore and D.C. in Philly, in New York, they have pretty strict rentals. So this is just something to keep in mind. Like in Seattle, it's, I'm just looking at it. It's $150 per the first unit and then $20 per unit after that. So it's not going to break your bank. You should put it into your underwriting. For me, the risk is more when you need an inspection.

Starting point is 00:22:52 You should factor the potential for needed upgrades into your stabilization budget. Like when you're going out and buying something, you need to understand that someone's going to come in and tell you that you have to do something. I have not had bad experiences personally, but I am betting in the comments we're going to hear someone say that they've had bad experiences in this. because of those persnickety people out there. All right. So those are many of the variables on the regulatory side that you should be thinking about. Again, it's sort of the whole bucket of things that happen when you unfortunately have to deal with someone who's not paying rent or has had violated their lease in some way. We've also talked about rent control and rental licensing as well.

Starting point is 00:23:39 But at least in my mind, the regulatory side is one part. the return side is a whole other thing because just like everything regulation offers risk and challenges and operations that you need to navigate but like sometimes it's worth it if the returns are there right so i think we should talk about like how to balance the opportunity for return versus some of the regulatory things that you're going to need to navigate so let's get into that but we do got to take one more quick break we'll be right back if my house had resume, it would probably say great at structure and not much else. I'm the one paying the mortgage. My house mostly just stands there looking supportive. When you're away, it doesn't actually

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Starting point is 00:27:16 like rent control or rental licensing or how long it can take to evict a nonpaying tenant or someone who has broken their lease. And we've gone through each of those, what they mean, some tips on how to navigate those things. But I think we should talk about how much this matters and how to think about, one, if you're trying to pick a market to invest in how you should be evaluating them. Or two, if you invest, regardless of where you invest, how you should be thinking about some of these regulations. Because to me, just like everything in real estate, there is risk and reward, right? And so you got away the risk and reward. For example, not being able to evict someone who's not paying their rent for six months, that's a risk. Is it worth it

Starting point is 00:28:03 in a market with no appreciation and bad cash flow? I think you know the answer. If that's in a market that has really strong fundamentals, maybe it is worth it, right? So I don't know. At least that's how I think about it. I mean, it all boils down to risk and reward. And so, first of all, if you're trying to pick a market,

Starting point is 00:28:23 landlord-penet friendliness is probably further down the list for me in terms of what I'm considering. I'm first looking at how much money I'm trying to make, when I'm trying to make it. Next, I'm looking at what strategy I want to do that's going to get me to those numbers. Third, I'm looking at what markets do those strategies work in? And then I'm going to start to narrow down that list of markets.

Starting point is 00:28:45 If I have like 15 markets that I can do this strategy in, I'm going to start narrowing down those markets still not by landlord-pennant friendliness yet. I'm going to be looking at affordability of the market. I'm going to be looking at, is it a place I want to go visit? I'm going to be looking at, is it a place I have some sort of superpower in? Do I know people? Have I lived there? All of these things come first to me. And then once I get it down to a list of maybe three to five places that I want to invest, then I'll dig into the landlord-tenant rules and then determine how much of an impact I think that may have on me being able to get to my financial goals. And if it's way riskier, in other words, if the risk is high that I'm going to have more problems that are

Starting point is 00:29:27 going to cause me not to hit my financial goals, then I'm not going to choose that market. But if it's more of an even risk-to-reward ratio, I'd probably still consider that market. And So I think people give landlord friendliness and tenant friendliness way too much attention. I agree. Yes, you should pay attention to it, but it is not even on my top five list of things that I'm focused on when I'm evaluating a market. Same. And then landlords, us, this is for us.

Starting point is 00:29:55 We always want to find an excuse for us not having to be good at the one thing we really need to be good at in order for us to be good. landlords. And that is tenant selection. Every single landlord, whether you're managing your properties yourself or you're outsourcing it to third party, our job is to be very good at tenant selection. It doesn't matter if you're renting in D-class neighborhoods or A-class neighborhoods. Just because you got an A-class property doesn't mean you're going to get an A-class tenant. You can have an F-class tenant and an A-cast property happens all the time. You have to be good at tenant selection. And a lot of landlords don't take the time to figure out how to get good at that. And we rely on all of these outside sources to be good at for us. We want our property manager to be good at it for us. We want the laws and local regulations to save us

Starting point is 00:30:54 when we're not good at it. And that's not what they're there for. That's such a good point. Yes. You need to think about it and account for it. Yes. In the markets where it is a much more a tenant-friendly state, yes, you need to underwrite for it. You need to have the cash reserves for when situations go bad. You need to have the proper real estate attorney to help you navigate through any of these situations. All of those things are things you need to have to prepare yourself. Yes, absolutely. But the one thing that needs to happen in order to keep you out of those situations is on you. Be better at selecting tenants. No notes. First and foremost, this is something that happened. sometimes, unfortunately. I'll be honest, I've never evicted someone. I've threatened to evict people. I've

Starting point is 00:31:41 had to file to evict people, but I've been fortunate in being able to do that because I've gotten good at tenant selection. Now, I'm sure that will change at some point, you know, there's an inevitability to this thing if you're in this long enough. But I will just say that you have a good deal of control over this. What quote unquote, a good tenant is is also subjective. You need to get good at finding someone and putting them in a situation where they can succeed as a tenant, where they are going to pay. That means not demanding the highest amount of rent and finding someone who is stretching to get into that unit so you can make an extra 15 bucks a month. Right. Like that is not a good idea. Like, if you are in a market, if you are buying A-class properties in New York City and you're

Starting point is 00:32:36 worried about tenant laws, you're crazy. Like, you don't need to worry about that. You're renting it to someone who probably has a very high-paying job and can pay the rent five times over. Like, that is not a challenge. That is not something you should be thinking about. If you're buying C-class property in a very unaffordable market where people are stretching themselves to get into your unit, then you should take it a little bit more seriously, right? That's where you should be underwriting these things. But as Henry said, it's like pretty low on my list. I think much, much, much more about the things I know I'm going to encounter. What are the rents? What are the taxes? What are the insurance? That's stuff that happens every year, every month, every month,

Starting point is 00:33:19 right? Like, that is something you're just always dealing with. Think about that. Think about your team. they're going to help you navigate these things way more than the law, right? Like, you should be thinking about, do I have a great property manager? Henry mentioned a lawyer. Like, if you have great people who are helping you screen tenants and figuring these things out, you can rely less on the regulation. If you are just throwing people into units, which I hope you're not, then you probably should be worried about this stuff.

Starting point is 00:33:49 I'm not saying they don't matter. It does. But I think Henry's right. Is it top five variables I think about? No. maybe makes the top 10, but I'm not even sure it does. But that said, I think that what we're trying to get across here is like it is about you and your business model.

Starting point is 00:34:05 Like I was just saying, like if you're buying a certain class of property, it's probably not that important. But as you are formulating your strategy, whether you're picking a market or you're figuring out what types of deals to buy in your market, do some research. You should know what's going on in your market. You should have this information when you're making these decisions. but treat it as a variable like you treat other variables in your underwriting and deal analysis. At least for me, none of these are true deal breakers.

Starting point is 00:34:34 Rent control is like the closest for me. But if the numbers worked and I really liked other stuff, I would even consider that. But it really just comes down to being able to see the big picture, right? Take these variables into account with everything else and formulating your strategy accordingly. And everyone, here's just a piece of advice, I think. everyone should follow in any market, but especially if you're in a very tenant-friendly state, go join your local landlord association. There's typically a statewide landlord association that has branches in certain pockets, whether in cities or counties that have smaller

Starting point is 00:35:13 branches. So find your local landlord association. Join the local landlord association. Dues are typically pretty inexpensive, but that will surround you with other landlords. Real estate's been around forever, guys. There are people who've owned property for decades and decades and decades. And anything that's going to happen to you or your business as a landlord has happened to somebody else before. So if you're part of these landlord associations and you find yourself in a sticky situation, now you've got a group of people who have probably dealt with the situation 10 times over

Starting point is 00:35:43 before and they can help you navigate the situation. They can also help you prevent certain situations. But it's just a good way to have better resources on your side. And I don't think enough landlords are part of. of their local landlord association. But that's just easy, easy, low-hanging fruit for you to be able to navigate some of these situations. All right, well, that's what we got for you guys today.

Starting point is 00:36:03 Hopefully this was helpful for you all as you think about where to invest, what type of deals to do. This is a popular topic. People really like talking about it, and it is an important variable. But hopefully, as you see, it's one thing to consider among many

Starting point is 00:36:18 as you're evaluating deals and figuring out your portfolio strategy. Henry, it was a great seeing you, man. You too, bud. Good talk. And thank you all so much for watching this episode of the Bigger Pockets Podcasts podcast. We'll see you next time. Thank you all for listening to the Bigger Pockets Real Estate podcast.

Starting point is 00:36:34 Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico content. And editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com.

Starting point is 00:37:00 The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - Would We Ever Invest in Tenant-Friendly States?

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