How Local Laws Have Made Life Harder For Mom-and-Pop Investors—And What to Do About It

Policy Shifts That Increase Costs and Shrink Flexibility for Smaller Landlords

Many cities, in a push for owner-occupancy and tenant protections, have made it increasingly difficult for smaller landlords financially. Rental registries, rent control, and no-cause eviction bans have squeezed landlords’ profit margins.

The management platform LandlordStudio defined a landlord-friendly state, examples of which it listed as Texas, Indiana, Florida, Georgia, and Arizona, as one that is favorable to investors in the following categories:

Eviction process

Landlord and tenant rights

Rent control regulations

Registration and licensing requirements

Tax and insurance rates

Market competition

In the meantime, co-investing platform SparkRental released a list of the least landlord-friendly cities in 2024, with these making the top five:

Portland, Oregon

New York, New York

Washington, D.C.

Baltimore, Maryland

Detroit, Michigan

On the other side of the coin, GoBankingRates compiled a list of the best cities to be a landlord, with these among its favorites:

Columbus, Ohio

Phoenix, Arizona

Nashville, Tennessee

Charlotte, North Carolina

Salt Lake City, Utah

The Financing Squeeze

Financing is also increasingly difficult for smaller landlords who aren’t taking out large loans, reports Realtor.com. Many lenders have cut down on lending smaller loan amounts, especially those under $100,000, because they are less profitable and seen as riskier under current regulatory frameworks. That means smaller homes, often a starting point for new investors, especially those pursuing the BRRRR strategy, are more likely to be sold to all-cash buyers.

Final Thoughts: Tips for Small Investors

Before you start ringing the alarm bells about real estate investing, it’s worth zooming out and looking at the macro picture. Small real estate investors with 10 properties or fewer still own more than 90% of the single-family properties in America—so clearly something is working. People will always need a place to live, and that is something neither artificial intelligence (AI) nor politics can change.

The real dilemma is the lack of housing compared to the population, which has pushed up costs. In its October Market Update, investment bank J.P. Morgan estimated that the U.S. was short 2.8 million housing units, the shortage will take a decade to resolve, and that lowering interest rates would do little to move the needle.

The bank stated:

“Today, the cost of owning a home is roughly 40% higher than renting, and the average American needs more than eight years to save for a down payment, both of which drive a preference for renting, with median apartment rents relative to median weekly wages now falling below where they were pre-pandemic.”

With that in mind, here are a few tips as you plan your investment journey.

Pick a strategy

Define your strategy based on your liquidity, time, and risk tolerance. Leveraging is fine in theory, but if you don’t have the capital to back it up when seas get rough—which they will—it can be a disaster.

Owning rentals requires reserves. If you don’t have them, partner with someone who has the cash but not the time.

Lean on digital tools, data, and local knowledge

These days, an ocean of knowledge about local markets is available at your fingertips, and digital tools—apps and software—make market analysis, deal sourcing, tenant screening, rent optimization, and accounting far easier for tech-savvy investors and management companies, saving time.

Focus on niches or underserved segments

The way investors can win against homeowners and institutional investors is to focus on areas where they are not dominant or don’t wish to be. These could be in the following:

Affordable homes in smaller cities, closer to rural communities, where there is demand

Older homes requiring moderate rehab, which new buyers typically do not wish to undertake

Units that cater to renters who do not want an anonymous, large-scale corporate landlord. These are often in closer-knit, small communities.

Areas with reasonable regulatory environments that are favorable to small landlords. For example, Washington state has floated the idea of capping the number of units a single investor can own, which would push out Wall Street investors.

House hack smaller multifamilies of two to four units, thus qualifying as an owner-occupant. Rinse and repeat.

Be selective. In the current housing environment, now is not the time to accrue a slew of doors unless you are extremely deep-pocketed. Rather, focus on making each purchase count, yielding the most cash flow possible by focusing on price, repairs, location, and rental demand.

Yup, smaller communities and country on the edge of smaller towns. Stay away from big cities and places/states with anti-landlord leanings.

Ray, did you write that, or have AI do it?

I ask because it hits on many topics that you have been talking about for some time now.

"The way investors can win against homeowners and institutional investors is to focus on areas where they are not dominant or don’t wish to be. These could be in the following:....."Units that cater to renters who do not want an anonymous, large-scale corporate landlord. "

I didn't write this. I read about 10-15 articles each day and post a few every week online.

It is easy to cry that things are turning bad, but if you are doing that without wanting to act - I guess it is a cry out for group hug.

I didn't write this. I read about 10-15 articles each day and post a few every week online.

It is easy to cry that things are turning bad, but if you are doing that without wanting to act - I guess it is a cry out for group hug.

Look at that list of cities

Portland, Oregon

New York, New York

Washington, D.C.

Baltimore, Maryland

Detroit, Michigan

Thanks Ray for posting it then.

It sure did read as if you wrote it. Guess that proves that what you have been saying follows what others believe as well.