Ep. #58 Worst Cities & States for Landlord Regulation

Some cities and states just don’t like landlords. And they make life for investors far harder. 

So? Don’t invest in these markets. Put your money in investor-friendly markets instead for higher returns and fewer headaches. 

Deni and Brian explain typical state landlord-tenant laws, then dive into ten cities with the worst anti-landlord laws. 

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Brian Davis: Hey, guys. Brian Davis and Deni Supplee, here from SparkRental, happy Tuesday!

Deni Supplee: Hello Everyone

Brian Davis: Or later days, if you’re listening to the podcast after the fact. But we do broadcast this live every Tuesday at 2:00 o’clock Eastern, 11:00 a.m. Pacific through our SparkRental Facebook page. So it’s not all pristine and perfect and edited and touched up. And after the fact, it’s raw and live. But the good thing about that is you guys get to ask us questions as we go and have a dialog on here. And it’s not just Deni, and I talking at you. So last week we talked all about how did you have bad contractors? Because I personally find that contractors are one of the most difficult parts of being a landlord, being a real estate investor. Is married to a contractor. So I know she agrees. And today we’re talking about anti-landlord laws. So cities and states with extremely tenant-friendly laws that make life really difficult for landlords. The eviction moratorium has really opened a lot of landlords’ eyes to not only the anti-landlord sentiment that’s really been growing in this country for the last few years but also how regulation can really impact your bottom line as a landlord. So, Deni, you know, let’s talk first about just the context of rising anti-landlord sentiment and regulation. The calls for rent forgiveness that are becoming more and more shrill all the time. I mean, what are your thoughts on this?

Deni Supplee: Oh, I mean, I think that I get the balance. You know, there are probably people out there that truly need help, but unfortunately, I think that this has been swayed more to a lot of the people that don’t need help and are taking advantage of the system. And therefore, landlords, especially the ones that own one to four units that are, you know, just making it, are really getting hurt right now. And.

Brian Davis: Well, I want to I want to push back for one second here. So there are a lot of people out there in the pandemic who did lose their jobs, right. They did need help. But didn’t they get that help in the form of extended unemployment benefits extended in two ways? One, they were extended timeframe-wise. Right, because most states historically have put like a six-month cap on unemployment benefits. But that six-month cap was removed during the pandemic and extended towards the latter part of this year in 2021. And they were also extended. Dollar-wise, a lot of people were earning actually more from their unemployment benefits than they were earning from working. So, I mean, weren’t Tennant’s already people who needed help and people who legitimately lost their jobs, weren’t they already being given assistance with paying their bills through unemployment assistance?

Deni Supplee: Yes, I don’t think it was right away. And I think there you know, there is a waiting period in between. And I think that there, you know, just to be the devil’s advocate here, and I’m probably not going to have fans for saying this, but I think that there is, good and bad on both sides realistically. So we do have. Sorry, I thought I shut that off.

Brian Davis: Yeah, we did mention that we were live. Right.

Deni Supplee: I do believe that there were tenants that were hurt, but I think they’re the ones that were quick to make sure that they caught things up. And as soon as any help or aid came to them, they took care of it. And then you have, unfortunately, which in my experience lately is the majority are the ones that are taking advantage of a system. And unfortunately, there are good landlords that are getting hurt.

Brian Davis: No question. But yeah, I mean, just listening to some of the anti-landlord rhetoric around the country, calls for a permanent eviction, moratoriums for some people from the far left. Calls for widespread massive rent, bailouts, and rent forgiveness. I think it’s really worrying as a landlord and as a real estate investor. I worry about where we’re headed from a regulation standpoint. Both federally and on the state and city level and some of these more tenant-friendly states, which we’ll get into in a minute. And some of these really particularly bad cities. And by the way.

Deni Supplee: I hate to get all too political here but think

Brian Davis: It’s inherently political.

Deni Supplee: This is what it is. But I think our government sets things up for people to be anti-landlord. I mean, sure.

Brian Davis: And in a democracy, there are going to be way more tenants than there are landlords. And democracies are fundamentally a popularity contest. Right.

Deni Supplee: But I mean, we look everyone we need landlords because if you didn’t have landlords, you wouldn’t have a place to live. I mean, truthfully, if you can’t buy, then you need the landlord. And the idea, like I see these landlord hate groups on social media and things like that. And of course, there are some bad landlords. But for the most part, the people I know, work hard and they do take care of their units. And it’s just a shame that there’s this kind of attitude out there. You’re not going to walk into Wal-Mart and because you are having hard times, you’re going to just grab stuff off the shelf and chuck out of there. That’s not going to happen. Nobody’s yelling at them. Right. Yeah. But yet when you know, somebody is blatantly like, we’re not checking out story is we’re not doing anything like that and we’re just handing them free rent or. Sure, stay there for as long as you can, because the CDC, who has no bearing in any of this anyway, is telling you that CDC. I always do that. If you have been in Washington for as. Sorry. But anyway, I get mad at that.

Brian Davis: Well, so do I, and so do a lot of our readers. So we sent out a newsletter this morning talking about this broadcast, talking about the two interactive maps that we made breaking down anti-landlord laws around the country. And by the way, Deni, if you could share a link to that. So, yeah, we heard back from a lot of landlords who are really upset about the way this is going. And, you know, Cristina Colon just commented here. She makes a great point, says the thing is not our responsibility to provide for our renters to provide them free housing. You know, why should we be subsidizing their housing? Like you said, Deni, you know, just because someone is out of work doesn’t mean they can walk into a grocery store and just load up their cart with whatever they want for free and then walk out of the store. Right. Right. So Christina goes on to say, I think society has become too entitled, too sensitive, and expects too much without any effort. Christine, I happen to agree with you. You know, from the rest of you guys, let us know your thoughts on the matter. I mean, obviously, it is very controversial and we want to hear your thoughts. This is an interactive show. So let’s dive in here, Deni, to talk about the state level because there are you have the state-level landlord-tenant laws, and you also have some cities that layer on their own landlord-tenant laws on top of the state laws. So let’s just do a really quick overview of what state landlord-tenant laws look like and how they can be either more tenant-friendly or more investor-friendly.

Deni Supplee: Well, one of the things is how they handle security deposits. Let’s start with that. Some states have separate landlord-tenant sections of the law, on how the security deposits have to be handled. And, you know, some of them won’t allow normal wear and tear, but there are certain things that aren’t considered normal wear and tear by some states that some people would think. There’s like so much gray area and the states will favor, The courts will favor a tenant. So if you’re going to court and there are disputes there, most likely the tenant is going to win. And that there is. Oh, my goodness, how. Where are you keep your security deposit? How much interest you’re going to pay? I mean, they tell you when you can pick your nose, basically. I mean, it’s kind of ridiculous. There are some states that will say if the winter months are they give you a certain degree. And even the amount to me is a little odd because I wouldn’t be cold at that point. I mean, I wouldn’t I mean, things like that. And, you know, one of the cities that shocked me was charging landlords for not getting on top of heat repair.

Deni Supplee: Well, I know that I managed an apartment complex and it was a boiler system and the boiler system went down. Well, you don’t fix a boiler system. In even twenty-four hours. It took us a while. A little while. Now, what we did do is we made sure everybody had a space heater. Now, if we were in the city that I’m speaking of, I forget which one it is. We would have been fined. So, I mean, it’s just. It’s tough, and I know I tend to be a little softer on certain things. I like I know Brian says a lot of like don’t invest in these cities. And I mean, sadly, some of us need to invest in these cities because housing needs to be provided. But don’t want to invest anywhere. No, we don’t. We don’t. But I mean, I guess what astonishes me here, too, is what happens, though, is the landlords are going to stop people will stop investing in these cities and. The prices are going to plummet. And then who gets hurt? It’s like a lose-lose situation. But yet we still have these lawmakers tipping the scales.

Brian Davis: And, of course. So, you know, and Kevin Thompson to that point says it’s helping to create a rental shortage. These regulations encourage landlords to sell, especially when there is a current housing price boom, and also contribute to sky-high rent increases. Because at the same thing, right. Because you have a rental shortage. So there’s not enough supply and effectively harming the people they’re supposedly intending to help. And Kevin’s 100 percent right. In fact, we had a woman, Marina, comment on that article with interactive maps that we just shared. Right. She commented this morning about how she is. She has a rental property in Portland or had a rental property in Portland, which we’re going to talk about in a minute. As a prime example of a terrible city for landlords and because of the recent set of laws that they just passed in Portland, anti-landlord laws, they’re selling. And not only are they selling, but they’re selling that house to a home buyer so that unit is being taken off the market. Right. It’s no longer a rental unit. It’s available in the city. And so that’s Kevin’s point. That’s exactly what’s happening. Landlords are just unloading their units in these cities, driving up rents and driving down the supply. So, yeah, I mean, you can’t regulate your way to just make the market whatever you want it to be anyway. So, you know, a couple of other quick comments about state laws. So, you know, some states have very slow eviction timelines. In others, it’s a little more streamlined. You know, they could have very low limits on security deposits, you know, such as one month’s rent, one and a half months rent. Right. As opposed to charging what they want. They could put low limits on fees like late fees or NZDF fees, insufficient funds, fees, which are bounced check fees, basically.

Deni Supplee: And they have a forced amount of time before you can even collect a late fee.

Brian Davis: Yeah. And in some cases really long. Yeah. In some cases, it can be 30 or 60 days when the landlord is not allowed to charge a late fee. So, you know, a few examples of particularly bad states as far as landlord-tenant laws. Vermont is not landlord-friendly. Delaware is not landlord-friendly. Arizona, New Jersey, Hawaii, Rhode Island. These are states that are not landlord friendly,  Massachusetts. But I want to let’s just drill down to the city level. So every state has its own landlord-tenant laws, right. Some of them were landlord-friendly, some were tenant from the most cities do not have their own member tenant laws. They simply follow the state laws. But some cities, impose even stricter landlord-tenant laws than state laws. And these cities tend to be really bad places for landlords to invest, just places where you don’t want to own rental properties. So we’re not going to spend too much time on each one. Otherwise, we’ll be here all day. But let’s just quickly walk through the ten worst cities in America for landlord-tenant laws. So Portland being number one, actually, which is where Marina was saying that she’s right in the middle of selling her rental property because of the anti-landlord laws there. And, we’ll give you a quick. So, they don’t Portland, for example, does not let landlords non-renew tenants without having, quote, a reset cause. Right. So the end of the lease comes along and it becomes one direction or, unilateral, where only the tenant can descant or can choose to not renew the lease. The landlord must renew the lease if the tenant wants to. They restrict rent increases.

Deni Supplee: They even restrict amounts.

Brian Davis: And they require the landlord to pay relocation assistance to tenants in for a wide range of reasons. It’s just nutty.

Deni Supplee: So that to me was crazy when I was looking into some of these set there, that relocation assistance. Really, why don’t we put them up in a hotel and room service?

Brian Davis: Yeah, that signed right into the Hilton.

Deni Supplee: Serious.

Brian Davis: All right. So Deni with with number two on the list, worst landlord cities.

Deni Supplee: Number two, it’s New York City. And I’m sure most people who have, you know, heard New York City, they you know, you know New York. Not a surprise. Yeah. Well, I mean, they have the rent control and. Oh, my goodness. There is. Who can move in? Who can move out? And it’s if that’s craziness and there’s organizations for tenants and there’s organizations for organizations for defense. I mean, there’s so much help for the renters in New York just to make sure that the landlords are doing what they want them to do, basically. I mean, so New York is and New York is expensive.

Brian Davis: Oh, it’s crazy. Expensive. Yeah. Tenants get free attorneys in New York City when when the landlord goes to evict them. So the tenant breaks the lease and then the city gives them a free attorney to help them stay in their property, even though they broke the lease agreement.

Deni Supplee: The owners can’t even remove their units from rent stabilization. There’s like this whole protocol they have to go through. And the likelihood that it is removed is slim to none. Yeah, so you have no control. You basically buy a property that you have no control over. That’s to me, what it seems like in New York. Sorry, New York.

Brian Davis: I, I, I have never owned any rental units there. I will never own any rental units there.

Deni Supplee: And Christina, because it’s New York City is another beast, but it’s different in other areas. There is like outer areas in New York that it’s not that bad there. And once you bring that up, I drop us to number ten on the list, which is where I’m from, which is Philly, Philadelphia. Now, Pennsylvania as a whole is more landlord friendly. When I was managing properties in the suburbs, I could get somebody out of an apartment in sometimes two weeks, If the courts weren’t busy, it wasn’t that hard. Philadelphia, A year is not unheard of. Eight months. I mean, that’s not unheard of. I was evicting somebody. The last person I evicted in Philly was probably about four or five years ago. And that’s when I said no more, no more. I won’t manage in Philly or anything. You know, I’ve had people ask me to manage the properties in Philly and I’ve turned them down because it’s just ridiculous. You can’t. It’s aggravating. Even cash for keys can be aggravating. It’s just. And yet Pennsylvania is not Pennsylvania itself. It’s not about you know, you can go to Pittsburgh or some of the outer lying areas and it’s nothing like Philadelphia.

Brian Davis: Well, so we skipped some cities there. We went for the day. So then you give us a really quick overview of number three in the list and why we shouldn’t invest there.

Deni Supplee: Well, Washington, D.C., go figure they to not only do you have to get a certificate of occupancy in D.C., but you also have to get an actual business license, a housing. Business license, not only that, you also have to register with the rental accommodation division. It’s just there’s so many divisions that get involved here that anything like a tenant can complain about something and then they can complain to one of those divisions. And then you’re that’s all you need is one of them to step in an apartment. And I know you know what I’m talking about, Brian, because once you get an inspector from one of these, they’ll rip your yard. Oh, my goodness. You’re looking at, you know, a plug that was broken to the whole place needs to be completely redid or or whatever. But I mean, it’s ridiculous.

Brian Davis: And you’ll never be able to get the tenant out of there. They’ll go a year without paying rent. Yes. Yeah. And they’ll find every loophole in the book.

Deni Supplee: My goodness. Washington also provides very out there for the tenants all their rights. One of the craziest things, Brian, I found with Washington is the size requirements for the. How many people in a bedroom?

Brian Davis: Oh, yeah,

Deni Supplee: That was that was crazy to me.

Brian Davis: Which again, hurts the tenants because a lot of lower income tenants, they might want to put, you know, multiple children in a bedroom, maybe multiple adults in a bedroom, sharing a room to save money. Right. Because maybe they don’t have a whole lot of money in. They’re trying to save money by having more people in one home. Right. But D.C. prohibits it, allegedly to protect the the tenants. So, you know, it’s a classic case of, you know, just like we were talking about with Kevin earlier, how, you know, these protectionist policies ends up hurting the people they were designed to protect.

Deni Supplee: Exactly. And also, they have heavy regulations around when you can charge late fees and and all of those things. So DC’s a really a place not to hang in. Hey, hang your rental sign in.

Brian Davis: Yeah. And right up the road in Baltimore is number four.

Deni Supplee: I’ll let you

Brian Davis: Explain that one. Well, I’m from Baltimore. I love Baltimore, but it’s a very troubled city. They actually just recently put into an effect a quote. No evictions without just cause. But it’s not actually eviction. It’s just not renewing tenants at the end of their lease term. And there’s all kinds of other crazy laws in Baltimore you have to register with both a city authority and a state authority to pay fees to both. In between every single tenancy, you need to have a lead paint inspection, which is difficult to pass, by the way. It’s very difficult to pass. And there’s just there’s endless red tape in Baltimore and rules that make life really hard on landlords. So you have to put the security deposit in an interest bearing account, and you have to pay the tenant interest, but to pay the tenant way more interest than what you can actually earn by putting money in a checking account or a savings account. So it’s just it’s crazy. Anyway, I don’t want to get bogged down in any one city here. So number five on the list is Detroit in Michigan. Yes. Now, again, you know, we our most recent co-investor deal, we’re partnered with Drew Surjit, who’s based in Detroit or right outside Detroit. And we bought a rental property there to fix up. But it’s not actually in the city of Detroit. It’s in the surrounding metro area. And, you know, to Christina’s point earlier, often you have these super protective cities in states that are actually have reasonable landlord tenant laws. Like Christina said, there’s no rent control in upstate New York. So, you know, you can you can invest around the outskirts of some of these cities, in many cases, just not within city borders,

Deni Supplee: Pennsylvania, most of them.

Brian Davis: So, Kevin Thompson says I would I would never invest in any of these cities mentioned for the reasons you’ve stated. Especially after 2020. On the flip side, the reason some people do is because certain areas like Hawaii, Southern California, New York City have experienced accelerated appreciation of value. And even if it’s a pain to be a landlord or even break even, it’s worth it, financially speaking, years down the road. But I still don’t recommend it.

Deni Supplee: Well, I think that we forget there’s a piece in there that’s not really financial, but it’s aggravation and there is a cost to aggravation. And I think that sometimes I would rather make less and have less aggravation. So and that’s something that you have to take into consideration.

Brian Davis: Yeah. no question. Christina says there are some states that are super friendly to landlords like Arkansas. But rents are so low and it’s not much investment. Why? So, you know, some landlords like to invest in more affordable real estate. there’s a diversification angle there, right. You know, you could potentially buy five properties in a low, cheaper market for the same price. You could buy one property in a more expensive market. Some people don’t like to invest in lower cost real estate. And, aside from things like crime or, you know, bad tenants or anything like that, there are parts of the country where those are not issues in affordable markets. Some people just don’t like to do it because they think that the headaches that come along with each door don’t aren’t justified by the cash flow provided by each door. That just comes down to your priorities as an investor. Some people would rather buy, like I said, a bunch of these lower cost units spread around for the diversification value. Maybe one of those will be in a neighborhood that pops up in value or not. But other people don’t like it. They’d rather have invest more money in one property that potentially cash flows more. So it’s just a judgment call for you as an investor. All right. So let’s we can wrap this up with the cities here pretty quickly. So Chicago, Illinois, is number six, very unfriendly to landlords. And Chicago, by the way, Deni is the city with the heat ordinance that you were referencing earlier. So landlords can be fined up to five hundred dollars per day if the heat breaks. So that gets that adds up really fast. And, you know, keep in mind, too, when you have a major winter storm blow through a city like Chicago and knock out a bunch of people’s HVAC or power or whatever. Sometimes you can’t get contractors in very quickly because every contractor in the city is out running around trying to take care of these broken properties.

Deni Supplee: Especially now with the shortage we have as it is.

Speaker2: Yeah. exactly. Anyway, something to keep in mind. Number seven, on the list is  Los Angeles. Major rent control in L.A., a statistic that blew my mind about L.A. and rent control. 85 percent of the rental units in L.A. are under rent control, 85 percent. Yeah, I couldn’t believe that when I saw that stat anyway. Yeah, there’s crazy laws in L.A. San Francisco is number eight again. Just nutty laws.

Deni Supplee: Limits on rent increases and.

Brian Davis: Oh, yeah, yeah. You can’t have, quote, no cause evictions, which is again, what we were talking about, how you can’t non renew tenants at the end of their lease if you want to. The only plot twist on this entire list, the only surprise was DeKalb, Illinois, which I may be mispronouncing, by the way, but all the rest of these are super progressive cities that, you know, none of these are plot twists. None of these are surprises. The only one that was a little surprising was the car, just because it’s a small city. Many of us have never heard of. But they have all kinds of groovy laws and of course, Deni, you mentioned Philadelphia rounding out the top 10 list at number 10. And I want to give an honorary mention to Seattle is another example of a really tenant friendly city that we’re actually going to be adding to this list, because it’s it’s also super tenant friendly, very anti landlord, and it’s regulation. So I personally will never invest in any of these cities again, I have owned many properties in Baltimore over the course of my career. And honestly, it was just miserable. I’ll never do it again.

Deni Supplee: And it’s funny how it’s different, because my father was a big real estate investor and most of his real estate investing was in Philadelphia. But it was so different then.

Deni Supplee: So different back then. Yeah.

Brian Davis: Well, yeah, I mean, the last eviction that I had to do in Baltimore City, it took me almost an entire year. It took 11 months to get this person out because they were what we call professional tenants, where they just moved from property to property. Don’t pay the rent and use every loophole in the book to stay in the property as long as possible. And, you can get away with that in cities like Baltimore that are super, super landlord friendly, I’m sorry, tenant friendly. And yeah, when he moved out, he punched holes through every single cabinet, scratched up all the floors, ruined. It was yeah. The whole property I actually ended up abandoning that property. That’s how it was a total loss. So and again, there’s one more unit off the market. Right. So Deni, any last comments you have about a.. Landlord regulation across the country, state level, city level? Any thoughts on this before we call this episode complete?

Deni Supplee: I think that I mean, look, some of us have properties already in the cities, if you’re in that position, just be very aware of the the law and the regulations there so that you can be ready, because I think that like when I was telling you about the place in Philly where the last eviction and they have a fair housing commission there. And I’m thinking fair housing means, you know, don’t discrimination. Yeah, right. Well, it doesn’t. It’s a place where tenants can go and rile up anything, to be honest with you. And it’s considered unfair housing. And that’s what this particular woman did. And there were legal fees. It was crazy. But I never heard of this fair housing commission. I heard of it, but I didn’t think that’s what it was. And I think it’s important for everybody, if you have any properties anywhere, you should know your laws big time. No, because you can’t play ignorance in this stuff anymore. You know, not that you could before, but

Brian Davis: No, you need to know the local laws and you need to abide by them or else you’ll get in all kinds of trouble, fines. You know, there are criminal penalties in a lot of these cities, by the way, which is crazy to me, criminal penalties on landlords who violate these landlord tenant laws. Kristina said sometimes you have to act like gangsters lol. Yeah. Yeah. Well, you know, maybe Vinny needs to show up with a baseball bat. Right?

Deni Supplee: I’m going to get a gangster T-shirt for my gangster landlord.

Brian Davis: Kevin Thompson says good info. Thanks, guys. And you know, Zeni, the other option is you can sell if you have properties. And some of these cities like Morina, the example we were giving earlier, the woman who commented on the article this morning, she sold they’re selling their rental property and getting out there, and they’re going to go and turn around and put that money in markets that actually want people to invest in rental housing there. Where they will probably earn higher returns for far fewer headaches. And that’s really the bottom line here. And it does it ends up hurting the tenants who are who these legislations are designed to protect. So, yeah, it’s totally counterproductive legislation. All right. Any final thoughts, Deni?

Deni Supplee: No, I did put in the chat section or the chat area that we have states, state summaries for most of the states that will give you a background on what you can and can’t do statewide. And then, of course, we have the article that gives you some background on your cities. But check your city’s out if you are investing in them.

Brian Davis: Absolutely. All right, guys, thank you so much for joining us today. We will catch you next week at two o’clock Eastern on the Spark Rental Facebook page. Have a great week.

Deni Supplee: See you later, guys.

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