Local lender for Out of state investing? Or does it not matter?

18 Replies

Hey guys - I'm hearing conflicting advice on what lenders to go with for investing out of state.

Is it better to go with a lender who is local to the area of purchase? Or does it not matter, it really comes down to the numbers being offered?

Would love to get folk's thoughts on this.

thanks!

@Joe T.

Find a lender that can lend to you in whatever state you are in (meaning they need to be licensed in all states or work for a bank that is. I have worked personally with @Diana Muresan , she should be able to help you with what you are asking. 

Another great lender on here is @Andrew Postell (extremely knowledgeable) and @Chris Mason (if you're investing in the Cali area).

Also, if you need any lenders for flips, another good guy that I have used frequently is Jonathan Surak from RCD Capital. Solid company and he is an investor himself, so definitely gets the ins and outs. 

As a side note:

Be careful with out-of-state investing, investing in your own state is already difficult enough. Highly recommend that you work with someone who is already doing out of state investing to make sure that you can shorten your learning curve. If you do figure out a good system for it, please feel free to share. I would love to add another weapon to my arsenal. Have a great day! 

Good Luck,

Scott

@Scott D Burrows Thank you for the referrals. I will be reaching out to Diana and Andrew. 

I'm not planning to do flips but I thought your comment was interesting. How would a flip lender be different from other lenders? Is it the shorter term loans ? Or is his team just more familiar with underwriting for flip projects?

I hear you on out-of-state investing. Right now the plan is to start small and take my first investment as more of an education. I've read the books and listened to the podcasts - and now we just have to go out and do it.

I'll make sure to provide updates and learnings!

Btw, what part of Indiana do you own rental properties?

@Joe T.

I have properties mostly in the Indianapolis area.

Flip (private, Hard Money, whatever term you'd like to use) lenders usually specialize in short-term loans with a little easier approval processes, they usually sell the loans to different private brokerages that look for high-risk, high-return type products. Usually, they will have a fairly high interest rate on the short term stuff. For example, if its a 10% rate over a year (APR-Annual Percentage Rate) and you only have it out for six months (you would only have paid 5% interest on the loan, effectively).

Side note: 

Be careful with hard money lenders.... a lot of them are a little "slim-shady" :) In all seriousness, there a lot of people that don't operate in a method that is actually helpful to business, but rather prey on uninformed people who are just getting started, which is why I recommend referrals as often as I can. Once you get more experience and knowledge about what's available, then I'd recommend branching out and really calling around, just be EXTREMELY CAREFUL at first. 

If you need any advice, please feel free to reach out. 

Btw, I would recommend getting some business credit cards (Chase Ink, AMEX Business)-reason I recommend business cards is that they report under your business name and not your personal credit profile (which is something I didn't realize until later (don't want to be maxing out your available credit, good way to destroy a credit score).

Good Luck! 

Scott 

@Scott D Burrows I've already had people reach out to me with 100% financing. The profile was brand new and the terms were certainly a bit odd. I can see why caution is necessary. I do appreciate the heads up. 

A few questions about the business credit card - I assume that an LLC or some sort of business entity needs to be set up first?

So you use your business card for all investment related expenses? (PM, maintenance, contractors, etc..)

As I get deeper in, I may reach out to you with some questions. On the flip side, if you think I may be of help in any way please don't hesitate to ask. 

Thanks!

@Joe T. if you're talking about conventional Fannie Mae financing, it doesn't make any difference, Fannie Mae underwriting guidelines will be the same regardless of the state, You just need to make sure the lender can lend in whatever state it is. What's most important to a smooth transaction is working with a lender and loan officer/mortgage broker that deals with a lot of investment property loans. Underwriting guidelines for investment properties are different than owner occupied.

Originally posted by @Joe T. :

Hey guys - I'm hearing conflicting advice on what lenders to go with for investing out of state.

Is it better to go with a lender who is local to the area of purchase? Or does it not matter, it really comes down to the numbers being offered?

Would love to get folk's thoughts on this.

thanks!

Local to the real estate.

Little things with regional variance like what words/language are used when the listing agent calls the LO before accepting the offer can be make or break. For example when going over timelines the lender might talk about the "escrow officer," but the property is in a state that doesn't use escrow officers.... that'll be viewed as a red flag by a listing agent advising their client on which offer to take.

Another real life example. In half of California escrow and title are amalgamated. In the other half, escrow and title are distinct. Trying to call a title officer is EITHER a complete waste of time, or it's the ONLY person to call, depending on which half the property is in. Good luck with someone in a call center in Detroit knowing that.

Also things like transfer taxes. Cross a city line into Oakland and boom you just incurred another $5k in closing costs. Do you want to know that upfront, or do you want it to be a surprise at the closing table? It's a tax, so not an APR thing, meaning the lender doesn't have to eat it if it's not accurately disclosed to you upfront, meaning it's on you to eat it.

Appraisal turn times. Hyper local. Appraisal norms, if property has X going on with it, what do local appraisers typically say about that? What if the work was done without permits? I'd be hard pressed to answer that question for Illinois real estate, but I have a sense for what plays out in the Bay Area and SoCal.

It'll be variations of stuff like that, but local to where you are buying real estate.  

@Joe T. I always feel that using local is better.  It is true that you might find a good, non-local lender....but your odds are better if you use local.  It took me a while to find a good out-of-state lender.  I do have one....but I've got 6 good lenders that are here locally.  You just have better chances working local.  I would post in the Illinois forum (if that's the area you are buying in) to see what other locals are using and I do have some suggestions on what to ask your lenders when you are interviewing them:

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  3. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
  5. Do you sell your mortgages?
  6. What is your loan minimum?
  7. Can you explain to me what your reserve requirements are?

@Andrew Postell   This is really helpful. Thank you!

Could you help clarify a few points? (My questions in bold below)

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately) 
    Can you elaborate on what "start using rental income to help me qualify" means? Does that mean that they are using rental income as WELL as W-2 income as a qualification?
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
    I didn't realize there was a title duration factor to refinancing. I thought it was only the 6 month seasoning time frame. 
    What if the title is under an LLC? Would a refinance not be possible?
  3. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
    Is this to avoid a due on sale call by the lender?
  5. Do you sell your mortgages?
    What is the implication of them selling mortgages?
  6. What is your loan minimum?
  7. Can you explain to me what your reserve requirements are?
    What answer am I looking for here? A higher reserve requirement for stability? Sorry, not sure I understand what this question is going for. 

thanks again!!

@Andrew Postell Just called several credit unions and asked your questions. They all stumbled and continued to say, “That is a really good question. I’ve never been asked that.”

Thanks for your guidance. I now know what lenders I shouldn’t work with.

My professional opinion....local is preferred, but not necessary.  That said, it really does depend on the market.  If I was buying in a small-mid size market that is a little more straightforward, doesn't matter as much.  But if I am buying in a big city that has its specific nuances, rhythms, way of doing business, and outside the box property types, I'd definitely go local. 

@Ronnetha Darrett Ahahahaha!  Actually, maybe I shouldn't laugh?  Keep trying and keep asking around.  Maybe even ask in the Indiana forum who some locals use (if that's the state you are looking in).  Investor friendly lenders are harder to find but when you do find one it is well worth it.  Good luck!

@Joe T.

  1. Yes! That means they are using the rental income IN ADDITION TO any other income you receive. In theory, you should be looking better to a lender the more rental properties you buy...since the rental income will offset that mortgage. I say "in theory" because that works under the assumption you are cash flowing your properties. Even if you are taking a small loss that rental income will still help offset the majority of the mortgage. Hope that makes sense.
  2. Ok, that 6 month "seasoning" is very common. YOU DO NOT HAVE TO WAIT 6 months. This is almost a requirement for us to have NO SEASONING, especially if we are using hard money to acquire...or any other higher rate acquisition loan. Must be able to refinance right away. MUST. And having in your LLC should not matter...of if it does, then a very simple workaround must be mentioned. No waiting.
  3. clear
  4. No, the LLC thing in a common asset protection strategy. And please forgive me, I am not endorsing that strategy...but if it's one that you want to use then it's important to know that the lender is ok with it. Or, as mentioned above, provides a very simple workaround to it.
  5. I feel that if they sell the mortgage, maybe it's not a deal breaker.  But if you are going to sell me to some jerk company that I don't like....at least give me the courtesy of telling me that up front.  If I have 1 lender who sells my mortgages...vs another lender who doesn't...and the rate and fees are identical....I'm going with the one who won't.  Just makes everything simpler.
  6. clear
  7. This question, along with all of these questions, is to test the lender and their knowledge on what we need as investors. As mentioned above, one person stated that the lenders she interviewed stated "I've never even been asked that before...let me get back to you".  That is an absolute RED FLAG.  That not only means they don't work with investors since they've never been asked it....but they don't even know the answer!  And maybe knowing the exact figure of how much reserves you need is probably not a deal breaker if everything else seems great...but you had better be able to tell me what they are.  Or how to calculate it...or something!  The true answer here is that a lender who has direct access to Fannie/Freddie underwriting systems can take your application and just hit "enter".  That's all that is needed and they can tell you the answer.  So it shouldn't be that hard.  If they need to go ask someone...that means they don't have direct access either....all sorts of alarms should be going off on that type of an answer.

I hope those help but feel free to tag me again if you need anything else. Thanks!