{"id":108754,"date":"2019-03-29T14:30:49","date_gmt":"2019-03-29T20:30:49","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=108754"},"modified":"2021-03-16T14:52:56","modified_gmt":"2021-03-16T20:52:56","slug":"out-of-state-investing-local-lenders","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/out-of-state-investing-local-lenders","title":{"rendered":"Out-of-State Investing: Which Lenders Are Best?"},"content":{"rendered":"

When investing out of state, the type of lender that’s best really depends on the type of loan product you need. <\/span><\/p>\n

There are certainly nationwide lenders in both the commercial and residential space, but what you\u2019re trying to accomplish matters most in terms of what type of bank you approach. <\/span><\/p>\n

Nationwide hard money lenders<\/a> are popular right now for fix-and-flip loans. Asset-based lenders and buy and hold loans seemingly go hand in hand right now, too. <\/span><\/p>\n

For either of those two strategies, location is largely irrelevant. And here’s another example when the lender’s location doesn’t matter much: commercial loans for large assets. <\/span><\/p>\n

What’s great about both hard money and asset-based lenders is that many of them don\u2019t care about buyer qualifications either (credit score, income, etc.). These lenders can issue loan products in this manner because they generally come with high costs in both interest and points to counterbalance the usual due diligence on both property and borrower<\/a>. <\/span><\/p>\n

So, in cases where you need a lender quickly and\/or won\u2019t pass standard underwriting, a nationwide hard money lender works perfectly fine. The rest of the time, for most borrowers, you’re going to want to do business with a bank that is in the same area as the property. Here’s why.<\/span><\/p>\n

Related: <\/strong><\/em>4 Must-Haves When Investing in Out-of-State Rental Deals<\/a><\/em><\/p>\n

Looking for a Subject Matter Expert?<\/h2>\n

Residential mortgage lenders are certified by state. So if you\u2019re looking for a one- to four-unit property out of state, it\u2019s quite likely that you\u2019ll be forced to get a lender in that state anyway. <\/span><\/p>\n

Many commercial lenders are going to operate exactly the same way. It’s not necessarily because of certification, but rather they prefer to lend in markets they know. <\/span><\/p>\n

When lending, banks are investing money into you and your deal. Therefore, they want to make sure that you and the deal are going to make money. They are going to want to do extensive due diligence for the same reason you\u2019re going to: you both want to <\/span>know <\/span>the deal is going to be profitable\u2014without having to take a stranger’s word for it<\/span>. <\/span><\/p>\n

Trust is not part of the 5 Cs of credit\u2014those being character, capacity, capital, conditions, and collateral. And it’s wise to expect a bank to ensure your deal is just as lucrative for them as it is for you.<\/span><\/p>\n

\"business<\/p>\n

In fact, in most instances, the bank is going to be the majority stakeholder (50%+ LTV) \u00a0in your asset, and they don\u2019t want to lose money. <\/span><\/p>\n

With that in mind, think about how much more difficult it is for you to buy an asset out of state. Now, I\u2019m a heavy advocate of buying out of state, but I know my market and I have a solid team on the ground. <\/span><\/p>\n

If you\u2019re in California and you want to buy a property in Mississippi, my hope is that before you sign paperwork, you have spoken to a property manager, a contractor, a realtor, and fellow investors to help you make a good decision. <\/span><\/p>\n

Why would I suggest this? It’s very simple. You don\u2019t (you can’t!) know the market if you\u2019ve never lived there.<\/span><\/p>\n

Possessing a deep understanding of the market you\u2019re buying in reduces risk, regardless if the deal numbers make sense. \u201cLocation, location, location\u201d isn’t the first rule of real estate for nothin’. <\/span><\/p>\n

So, if the bank you\u2019re trying to borrow from is also in California and they don\u2019t have any people on the ground in Mississippi where the asset is located, how could they possibly do an appropriate amount of due diligence?<\/span><\/p>\n

Related: <\/strong><\/em>Buyer Beware: 3 Essential Items to Vet BEFORE Investing Out-of-State<\/a><\/em><\/p>\n

The Lender Becomes a Partner<\/h2>\n

This might be the biggest discrepancy I see between the borrowing side and the lending side. When I see borrowers talk about loans, they tend to only see the terms of the product and the requirements to be filled.\u00a0<\/span><\/p>\n

They look at it like a checklist:<\/span><\/p>\n