When you’re looking into flipping in the U.S., keep in mind different are state regulations that impact your bottom line. Here are the 6 key state regulations every U.S. real estate investor should know.
State-by-state property regulations are nothing to be afraid of, you just need to know key differences and how to use those to your advantage.
Different states have different legal obligations that impact your profits so it’s important to do your market research before you buy property to make sure you’re aware of the key differences.
As a U.S. property owner, there are 6 key distinctions between states you need to know. Once you know what to look for,, you’ll know how to take advantage of perks, avoid pitfalls and fulfill your legal obligations.
To help you along, here’s a list of the top six key distinctions to look for when purchasing property in a new state:
6 Key State By State Regulations Every U.S. Real Estate Investor Should Know
1) Interest Rate Limits
Every state has different limits on the amount of interest on loans.
If you are getting a loan through a U.S. banking institution, it is well worth your time to find out exactly what the rules are to determine if you are choosing the best type of loan in the right location.
The interest rate limits on your loan should give you a good indication of how to move forward with a real estate strategy in a particular market. In Texas for instance, commercial loans up to $250,000 cannot exceed an 18% annual interest rate while consumer loans allow a ceiling of up to 30%, so that it may be beneficial to apply for a commercial loan if you’re doing business in Texas.
2) Tax Requirements
You most definitely need to take a look at your tax requirements for property ownership in different states. Many U.S. states require property buyers to become members of a Homeowner’s Association for example. Once a property owner becomes a registered member, they are required to pay annual dues for the upkeep neighborhood amenities.
Some states have local fees associated with property ownership. In New York for instance, property buyers are required to pay local property tax in addition to state tax. These taxes are due annually and are treated as distinct from individual income taxes – it’s a good thing that in New York, property taxes are deductible.
3) Conservation Regulations
Different U.S. states have different rules and regulations regarding conservation. Some important areas to look at are: maintenance requirements, property development procedures and insurance plans. In some states, certain properties may have warranties on appliances that come with the home which require regular upkeep, for example.
There are also different types of homeowner insurance policies and coverage available in various states that may make a certain insurance policy better in one state than another.
4) Types of Property Ownership
There are 5 types of property ownership in the U.S. that may be applied differently in each state.
The application of types of ownership depends on the state’s prevailing laws and established procedures.
Sole Ownership: This is where a single person has full control and ownership of a piece of property. Upon the owner’s death, the property will be dispensed based upon his will. If no will is given, it passes on to the heir as mandated by state law.
Joint Tenancy: Considered to be another arrangement of joint ownership wherein upon the demise of the one of the joint owners, the share of his property is redistributed to the surviving joint tenants. In a marriage situation where one of the spouse dies, the property will pass to the surviving spouse even if there is a will to give it to a third person.
Common Tenancy: This pertains to ownership of the property by two or more individuals at the same time. Shares are not equal for all owners and if one dies, the property passes to the heirs willed by the deceased property owner. The heirs enjoy full rights and privileges held by the original owner.
Community Property: This type of property ownership is only legal in nine US states particularly: New Mexico, Washington, Texas, Nebraska, Wisconsin, California, Louisiana, Arizona and Indiana. This stipulates that any property you have before marriage is yours alone. However, any property acquired during marriage is considered community property and is equally owned by you and your spouse. Inheritance and other personal gifts received after the act of marriage is still considered yours only.
Tenants by Entireties: This is a rule where joint tenancy like in married couples is provided asset protection upon the death of one of them. Not all US states have this type of stipulated protection. Florida is an example where this regulation is applied. In the tenants by entireties arrangement, the surviving spouse gets possession of the property.
The only way creditors can seize the property is if both spouses are indebted to the same. In order to qualify for this protection, couples need to be legally married at the time of the property purchase and must have a mutual agreement to a joint ownership arrangement as well as similar interest in the property of one another.
5) Judicial & Non-Judicial States
The most salient difference to be aware of as a U.S. real estate investor for judicial and non-judicial states relates to procedure. Many states use a blending of judicial and non-judicial procedures, which is where your local attorney comes in really, but it’s always good to know what you are actually paying for.
As a general rule, states that use mortgage procedures are judicial states. In judicial states, the courts are required to review a case before foreclosure processes are completed. Non-judicial states, on the other hand, use deeds of trust instead of a mortgage. Lenders only need to file a notice of default in order to commence a foreclosure proceeding and court appearances are unnecessary.
6) Landlord and Tenants Act
The Landlord and Tenants Act establish the role and responsibilities between a landlord and tenant. The act varies from state to state, however many of the core principles stay the same.
Here are some commonly shared principles nationwide:
- Payment of rent in a timely manner
- Maintain hygienic and safe unit
- Remove garbage and other waste
- Return property in original condition after completion of lease.
- Maintain initial structural qualities of the building, including appliances
- Responsible for the provision of security
- Not permitted to rent units in a condemned building (if a building is legally condemned, tenants are entitled to terminate any rental contract and seek arbitrary damages expenses from the landlord)
- Landlords may impose penalty fees if a tenant moves out without agreed upon notification.
There you have it, your guide to the 6 key state distinctions to be aware of in the U.S. real estate market.
When you pick a market to buy and sell U.S. real estate, be sure to look into these details to protect your investments!