Advantages of working with a local lender?

Question

Hey BP,

First time poster - my name is Martin and I live in San Diego. Professional background is in business development & technical sales in the biotech space. My experience in real estate investing is limited, though I did purchase a condo here in Little Italy in 2019 that I plan to run as a long or mid-term rental in the coming years. The condo is in a highly sought-after building in the neighborhood and serves as our primary residence today. I expect the unit to cashflow $1,100+/mo when I get it on the market as a long-term rental.

I'm gearing up to make my next investment and have identified a few target markets. My budget would allow for another purchase in San Diego, but I'll most likely be limited to properties within HOA communities. My gut says it would be best to avoid another investment within an HOA (an expense I have limited or no control over), though I'd welcome opinions from the community.

This has me considering other markets - some of which I can drive to (Arizona) and others a bit further (Midwest). My preference as a novice investor would be to stay closer to home so that I can more easily travel to the market for due diligence, general maintenance, etc.

My immediate question is about identifying a lender to support the new investment. How important is it to work with a lender that is local to your target market? If I were to invest in Arizona for example, would it be advantageous to identify a lender there or would any here in CA work just as well?

For context, the opportunities I'm most interested in are SFH and small MFH long-term rentals, ideally turn-key.

Thanks and happy to be here,

Martin

Dan H. · Answer

If you are looking for conventional financing, the lender can be anywhere.  I suggest you get a recommendation and if you like them then use them every time even in there are slightly cheaper options.

My normal lender has far exceeded expectation and always got me the loan.  Note I did not say anything about what he charges.  His service to me has been incredible (it helps that I probably have used him over 2 dozen times).  He has offered us free preliminary title checks, to act as escrow so I can go under contract on the weekend, free skip tracing, access to a comp tool, he always answers or gets back to me quickly when I call, and most important he has always got us the loan.  I consider him on the forever team.  He used to be local, but now is out of state but I will use him every time it is possible.

Our most recent offer was a non warrantable unit OOS (unfortunately not accepted).  My preferred lender is not licensed in that state but I was told from multiple agents that offers associated with lenders from outside the market are viewed as weaker than those associated with local lenders.  This is because some of these non-local lenders do not have a good understanding of the nuisances of lending in that market and therefore the preference of offers associated with lenders in that market.  In these cases I suggest you use a local agent so your offer is as strong as possible.

Good luck

Doug McVinua · Answer

@Martin Koch My experience on residential lending (up to 4 plex) would be that many, if not most, real estate agents that hold most of the listings would prefer an in-state lender. In-state lenders know the steps and understand the contracts used in 99% of the deals, and it is just easier. Out-of-state lenders almost always require coaching to understand the local nuances of paperwork, pre-qualification forms, Loan status updates, funding, etc.

Having done plenty of each, an excellent local lender is just smoother and will typically be the first choice. I have had plenty of out-of-state lender deals work out and close, but they nearly always require more effort to keep everything on track. I have seen a few out-of-state lenders become difficult and request the parties adjust to their process, and that generally turns out bad. When an out-of-state lender doesn't know the local contract and declares they will have legal review everything before they use the local paperwork, you know it won't be easy.

On commercial deals, it's prevalent that the lender is out of state. It's also expected that attornies are involved in all aspects. Residential in Arizona rarely need an attorney as the paperwork is boilerplate.

Broker/Agent and Property Manager in Arizona

Nate Meeker · Answer

@Martin Koch - I personally don't mind investing in areas with HOAs so long as they have strong reserves and haven't had crazy increases over the past. As far as lenders, I start local with someone I've built a relationship with and if they can't help me then they refer me. Crazy to see how much of a relationship business the lending side of things is.

Mark Frattini · Answer

@Martin Koch I find that my clients who are buying homes have the best success rate if they are using a great lender who is local. If they are local but not on top of things then just being local doesn't help much, you need both. This might be market specific but here in San Diego where you are likely going against multiple offers there many different ways a lender can actually help get your offer accept above the others. My lender has done enough deals in the areas I service that chances are they might have done a deal with the agent on the other side. Listing agents like to know if your realtor has worked with your lender before and if they are local or not. A good lender is going to be copied on your offer to the sellers and reach out to the sellers agent after your offer is submitted. They will be in the same time zone and will be available nights and weekends if needed. They will be somewhat familiar with the type of purchase agreement used and will be more understanding of the deadlines etc.

I suggest finding a great lender that is near the property you want to buy.

Martin Koch · Answer

@Kenneth Donaghy thanks for sharing your take. My initial thoughts were that it would make most sense to identify a lender for pre-approval prior to engaging with an agent/broker (this is what I did with my primary). You make an important point though - a solid, local agent can help facilitate connection to a lender they have experience doing deals with.

Appreciate your thoughts on HOAs as well, hadn't considered comparing annual dues to water/trash costs.

Absolutely have entertained small MFH in San Diego but unsure about whether I can make it work at this stage. I'll write you a line, would love to hear more about the opportunities you're seeing in this category.

Henry Clark · Answer

I would apply your question across all of your teams.  Depends if you plan to scale.  If you’re just going to do 2 or 3 units wouldn’t worry about my notes.

1.  Who are you?  You’re just another person.

2.  Can you cross collateralize or do you have equity hung up in one unit and have to take a loan out to get cash to transfer to another state or bank?  Can you make one phone call and have your banker tell you, you’re good for it?  Stop in Monday and sign the papers.

3.  Everyone needs a copy of your debt schedule, your tax return, your new I need the following from you.  4.  You can call them on Saturday, Sunday or after hours.

5.  How big do you plan to get? Ask for their federal lending limit.  What states do you plan to invest in?

You can always switch lenders later.

Zach Wain · Answer

@Martin Koch - There are only a few specific scenarios where local lenders matter, or lenders that specialize in certain states.  NY and Co ops is an example of that.  For CA, AZ, anything in that area the lenders location does not matter.

TX and FL have a couple nuances about it, but nothing too complex.  Mostly special cash out rules, higher state fees (FL) and expensive property taxes.

We are licensed in AZ, CA, CO, FLK, and TX.  If you have any questions let me know.

Martin Koch · Answer

Appreciate the insights @Dan Heuschele - interesting that a local lender can provide an edge in some markets. I've seen a bunch of your posts around the forums and they have been really helpful.

Erik Estrada · Answer

Hey Martin,

It really comes down to the type of loan. If the property is unique, or a commercial building, going local might be a better option.

If you are looking at 1-4 unit buildings, most nationwide lenders will be able to help out.

I would suggest having an array of lenders to help you out. Local bankers, Nationwide mortgage brokers, and private lenders.

Martin Koch · Answer

@Jake Kain thanks for sharing your perspective. I'll give you a shout if I lock in on AZ.

Advantages of working with a local lender?

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