out of state investment - lender qualification?

15 Replies

I am looking for out of state MF or small apartment complexes. My question is what are my options for financing such commercial properties?

Do people have success going to a small local-to-property bank to get financing for an out-of-state investor?

or going to small local-to-investor bank to get financing for out-of-state commercial property?

Or perhaps there is another approach to this? what are your thoughts?

@Yash Bajpai

I typically go to local banks that are within a 5 to 10 mile radius from the property.

You'll likely have better luck with a local-to-property bank as they better understand the local area and market. I would caution going too small on an out of state property though as managing it will be harder for you. What size are you considering?

It depends on the bank @Yash Bajpai , probably a local bank which is all over the state will be better then very small/ family owned bank type. this are much stricter and often just want to work with Local state residents with some track record. 


you could contact a local mortgage broker that could shop for you.

And, if you are planing to buy in this state it is wise to open a checking or saving bank account with one of the local banks.

@Michael Le : I am considering a small to medium size apartment complex in the 500-1m range. let me know if you have something you can forward my way to seriously consider.

Thank you for all your responses so far. So the unanimous response seems to be to go with a local to property regional bank. Perhaps not too small of a bank too. That helps.

I am also assuming that many of these regional/small banks/credit-unions may not have extensive online presence so i have to pick up the phone and do it the old fashioned way (but not 'too' old fashioned way of going there in person...as that would be very hard for me to accomplish for every potential opportunity i find).


Originally posted by @Michael Le:

You'll likely have better luck with a local-to-property bank as they better understand the local area and market. I would caution going too small on an out of state property though as managing it will be harder for you. What size are you considering?

@Yash Bajpai , 10-20 units is small for out-of-state investing. I'm not saying it's impossible but just harder. At the very least try to buy in a B class area because the combination of remote, small, lower class tenant demographics is going to be killer.

@Hadar Orkibi Thank you for that tip! opening a local checking/saving account makes sense to make it 'win win' for the bank. 

Originally posted by @Hadar Orkibi:

It depends on the bank @Yash Bajpai , probably a local bank which is all over the state will be better then very small/ family owned bank type. this are much stricter and often just want to work with Local state residents with some track record. 


you could contact a local mortgage broker that could shop for you.

And, if you are planing to buy in this state it is wise to open a checking or saving bank account with one of the local banks.

@Michael Le : yup, i agree. ideally i would like to go as large as i can go without being fiscally irresponsible and since i am a newbie to this, dont want to bite off more than i can chew. Having said that, i do appreciate your suggestion on a B class area. I am looking for a C class property in a B class area so i can value-add and get better noi. (so many things to learn...so many things i dont know that i dont know...)


Originally posted by @Michael Le:

@Yash Bajpai, 10-20 units is small for out-of-state investing. I'm not saying it's impossible but just harder. At the very least try to buy in a B class area because the combination of remote, small, lower class tenant demographics is going to be killer.

Well @Yash Bajpai its all about relationships with smaller local Banks... so that's how you start- you give first!. 

You will need to be willing to visit the bank in person. come in and shake the banker hands etc. and take them for lunch too.

@Yash Bajpai go for properties that require a loan size and have someone to sign on the loan for you and you can get Fannie or Freddie non recourse lending at 5-6% for 30 years 8-12 loan terms.

@Yash Bajpai you need to talk to the local lenders in the area to understand if they will truly lend to you. I will caution you that many will say yes, but ask for a pre-approval letter from them and pound into their head that you are out of state. Many will lead you along, only to tell you last minute that they cannot help you because you are out of state. The best lender to use will be a regional or National bank. In MN we have US Bank and they are open to lend in any location that they have a presence. 

Now, as @Lane Kawaoka mentioned, you can get a larger loan of over $1mm and then qualify for Freddie Mac SBL or Fannie Mae. These loans are actually less based on you and more based on the property. Don't get me wrong, they still look at you and want to see your net worth equal to the loan amount and solid cash reserves, but they also look at the property. Terms are great and they are non-recourse. 

Check out this article I posted on MF financing: https://www.biggerpockets.com/blogs/10145/72001-ge...

this is a great piece of advice. so basically if i can get qualified for a million dollar loan then my loan terms can be better than commercial sub million dollar loan.

what do first time investors do typically? go big and get better loan terms or start smaller and learn?

@Yash Bajpai There are so many ways an inexperienced person can mess up, that conventional wisdom would recommend that one learns with smaller amount of money rather than with massive loans. Most experienced bankers would be very hesitant to give large loans to novice investors anyway, especially in the commercial space. And for your own good as well, start slow and work your way up. Or you can also team up with an experienced person through partnerships, ... etc. 

@Yash Bajpai agreed with everything @Michael Le and @Todd Dexheimer have said. Yes, Freddie Mac SBL can offer much better loan terms than a local bank or credit union. Freddie loans are non-recourse (banks will be full recourse), Freddie can offer up to 80% LTV (banks will top out at 75%), Freddie will offer 30 year amortization with interest-only (banks will be 20-25 year amortization with no interest-only) and Freddie's rate will likely be lower.

While not impossible, most local banks and credit unions will not have an interest in financing an out of state investor. I also agree with @Michael Le in that it will be much easier to find a good management company for a larger multifamily property (60+ units)

@Yash Bajpai

Hi Yash,

I would try to focus on smaller community banks that like to lend on multifamily deals.  If you surpass the $1million loan, go to Freddie.  

The smaller community banks are easier to work with and are more flexible.

Gino

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here