Out of State financing

8 Replies

We live in Southern California, and as a just starting out real estate investor, California home prices seem to be too high.    We recently turned our focus out of state, but find it's harder to get financing for our out of state real estate purchases.

I'm not sure if it's right way to go to my local bank in California and ask them to consider financing our out of state purchases,  or may be I need to go to a bank in the area where we are investing, and ask the bank to do a local deal for an out of state investor.

Also it seems to be harder as a new real estate investor because the bank I deal with does not consider my real estate income as part of my income since it's very new addition.   From what I was told, my bank would not start considering my rental income as a landlord until the property has 2 year operating history

Anyone has experience with financing out of state deals?

You need to avoid banks.  They're state based, for the most part.  You need to find private, or a brokerage that will lend in all 50 (or at least the one you want to invest in).

Try Guild mortgage they are very strong in rental prop financing

Whether a property is in-state or out-of-state doesn't matter except with what lender you use because they have to be licensed to lend in the state that the property is in. They don't even have to be based out of that state as long as they are licensed to lend there.

I would turn your focus on finding lenders who are investor-friendly, more than worrying about locations. The major difference, and deal-breaker, with lenders comes with whether they are investor-friendly and deal with investors on a regular basis. THAT's what matters.

Hey Frank,

If you're purchasing an out of state 1-4 unit property (NOT commercial) there are a few options that work. 

1. Buy the property in a personal name, and use conventional financing. Banks that will lend for this purpose will be easy find, but they will want to use your personal income/credit as a means for qualifying financing. This will work until your debt to income ratio diminishes, or you reach the cap for conventional financing (4 or 10 properties, depending on whether you're getting a Fannie or Freddie loan, I think).

2. Buy the property in an LLC. Advantage: this is moreso based performance of the asset, rather than your personal income/credit. Downside is that you will have to find a local bank to do this- probably in the market you're investing in. And they're going to **** a brick when they realize you're out of state (they don't seem to understand property managers exist). Go online and make a list of 10 of them, and prepare your best sales pitch. I got a few yesses, one of which actually gave me a favorable rate and terms.

Other option is going straight to 5 units plus and obtaining commercial financing from Fannie Mae, which mixes the benefits of both the options I mentioned. May or may not be something you feel quite comfortable with.


@Frank Houng Im not sure if I misunderstood your post, but my lender includes my rental income as part of my DTI calculation so everytime I buy a new rental property with the 1 of 10 fannie mae loans (per person), my DTI ratio gets better.

For example - my rent was $900 they take only 75% = $675 - PITI (mine was $455) = to come up with $220 net income added to help your DTI.

I wonder if your lender is trying freddie mac lonas which to my understanding waits for 2 year of tax returns before they include it in your DTI.

Mostly banks lend in multiple states like MB lend in 45 States. You have to find out  a bank who can lend where you want to invest.  

I am in a similar situation...living in the Denver area and looking to invest out of state. I am just beginning researching lenders as the lender i've used for my owner occupied properties here will not lend out of state...good luck!

Plenty of big banks will do this. It’s easy when starting. Once you hit the ten limit cap you’ll need a local bank, meaning local to where you invest.

The other thing I haven’t seen anyone on this thread mention is you can do 10 properties in your name, and ten in your spouses/partners name.

You get 20 properties with conventional 30 year fixed financing. That’s a healthy portfolio for most people.

Portfolio loans are great but when interest rate is 6-7 percent on 3-5 year ARM and 20-25 year Amortization that changes your cash flow a lot.

My personal plan is to just pay some off as I grow. I’ve got a 30-40 year time horizon so taking a year off to pay a property off or only buying 3-4 a year instead of 5 is worth it.

Leverage is great but true wealth is built by owning properties free and clear for many many years.

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