All men are created equal. But not all states, as far as Real Estate IRA investors are concerned. This is especially true for those who hold rental property in their Real Estate IRAs. Naturally, every state tries to strike a balance between the rights of renters to privacy and stability and the property rights of landowners. And some states strike that balance in a way that is much friendlier to landlords than others.
The key issues are each states’ landlord-tenant laws, bankruptcy protection measures and overall friendliness to debtors vs. creditors, and property tax levels.
Arkansas is the only state in the country that does not recognize an implied warranty of habitability. This means that landlords have no obligation to maintain homes or make repairs. But the law forces tenants to pay rent, anyway. Most other states have at least some provision for rent withholding or partial payment in the event that the landlord does not ensure at least a functionally livable property.
Arkansas allows landlords to commence with eviction procedures once the tenant is just a single day late with rent.
Arkansas also allows landlords to have tenants fined and even jailed for failing to pay rent on time. I wouldn’t recommend doing that too often: People in jail aren’t very good at paying rent, either. But the option is there.
Texas tops the list for landlord friendliness. Landlords are generally able to evict tenants reasonably quickly for failure to pay rent, for example. Insiders tell us that if a landlord is determined to evict a tenant for non-payment, he or she can have a court eviction order in hand in about three weeks – and if the tenant doesn’t clear out, the landlord can have a writ of possession in hand within another week or two. With a writ of possession, the landlord can have the tenants’ property removed to the lawn (under the supervision of a sheriff’s deputy or other LEO (Other areas, such as Chicago/Cook County, Illinois, can take months.)
Counties vary, of course, but this is the case throughout much of Texas. Renters can find little recourse in the law to resist or delay eviction.
This reduces the risk of a Real Estate IRA owner’s investment because it’s unlikely that a residential rental property will become a non-productive asset for very long. The Texas landlord can quickly move a non-paying tenant out and move in someone who can keep up his or her end of the lease agreement.
Texas also has no state income tax, which is a boon to Real Estate IRA owners seeking to take income out of their portfolios.
Indiana’s landlord-tenant laws date back to 1881, and have not changed much since then. Indiana allows landlords to hang on to security deposits for much longer than other states – up to 45 days before the state allows the tenant to sue. Indiana also is relatively favorable to landlords looking to evict a problem tenant. Even in the largest city in the state, Indianapolis, landlords have been able to get an eviction order within a couple of weeks.
Colorado’s claim to fame for landlord-friendliness is in its access rules. Colorado allows landlords the right to access the tenants’ property at any time without a requirement of notice or request for access. Most other states require one or two days’ notice before the landlord enters a tenants’ dwelling.
Colorado recently added some protections for tenants in 2010 that took some of the edge off of the landlord advantage.
When investing with a Self-Directed IRA, it is important to seek proper legal counsel to make sure you know the state and local laws in the area you plan to invest in.