Author Topic: Out of state rental. Finance with bank local to me or the property?  (Read 1342 times)

omega13

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Hi all,

I'm evaluating purchasing my first out of state rental property, in Alabama to be specific.

I plan on putting 20-25% down on a property worth about 100k and financing the rest.

Do you recommend working with a bank that's local to me or to the property?

As I sit here and twist my mustache, this is what I see as the pros and cons of each so far:

Local to me:

Pros
: Better knowledge of local banks e.g. credit unions, ability to walk in and ask questions, can use existing relationships. OR is also a non-recourse state.
Cons: The bank might not be familiar with the AL real estate market if they're not a nationwide bank. Higher risk/higher rates (?)

Local to the property:

Pros
: Bank might be more comfortable with a local property. Lower rates.
Cons: Far from me. No history. No ability to walk in and ask questions. AL is also a recourse state. Higher risk/higher rates as an out of state investor (?)

Other questions that come to mind are:
  • Will hazard insurance, landlord insurance etc. be more expensive if the property is in a different state than myself?
  • If I live in OR, a non-recourse state, and have a property that goes bust in AL, a recourse state, am I more at a personal liability risk by having a loan in OR or AL?
  • Related to 2, to minimize risk, would purchasing the property and financing it in my name, then deeding it to an LLC?
    a. Help minimize personal liability?
    b. Trigger a due on sale clause ie. foreclosure warning
  • From a tax perspective, am I better off if the rent payments are made to an LLC I own and possibly diverted to a Solo 401k attached to that LLC to grow those funds? The goal is to purchase more rental properties down the road with that Solo 401k.
I would appreciate any sort of suggestion you can provide to help weigh the pros vs. cons.

Thank you.
O.
« Last Edit: January 17, 2017, 10:44:58 AM by omega13 »

fishnfool

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Re: Out of state rental. Finance with bank local to me or the property?
« Reply #1 on: January 17, 2017, 06:30:04 PM »
I say neither!

I refinanced my out of state rental last fall and did it all online with aimloan. I wouldn't hesitate to use them again for a refi or purchase. Great rates and superior service!

omega13

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Re: Out of state rental. Finance with bank local to me or the property?
« Reply #2 on: January 17, 2017, 09:41:20 PM »
Thank you for your input. I had not heard of aimloan before. Their reviews on yelp, such as the one below, don't seem promising. What was your experience like?

Quote
Unless you have the simplest of income documentation (i.e. W-2 wage earner only) you simply do not want to deal with this company's processors and underwriting department. Real property lending is a frustrating business these days on both sides of the coin but this company takes it to a whole 'nuther level. Having personally handled hundreds of real estate loans over the years, this particular experience with an AIM Loan rate and term refi takes the cake.

10% LTV rate & term conforming loan refi, 800+ FICO score and hundreds of pages of documentation later . . . I've walked away in disgust.

Perhaps your experience would be different. Unless you simply get a paycheck and W-2s, do yourself a YUGE! favor . . . it's certainly not worth the 125 basis points (1/8%) better rate than might be quoted elsewhere, trust me. And a revocable living trust holding title to your residence? You'd think these people were living in the dark ages. Good grief.
« Last Edit: January 17, 2017, 09:44:07 PM by omega13 »

fishnfool

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Re: Out of state rental. Finance with bank local to me or the property?
« Reply #3 on: January 18, 2017, 11:56:04 AM »
My experience was nothing but positive.  I'm sure not every customer of a lending institution has a bad experience now and then with every lender out there. Go on their user friendly website and you'll see how easy it is to get a loan estimate within minutes.

Beware that they do charge points for investment property with multi units etc. But they have very good rates and working through the process I got great service. Always kept up to date on where my loan was at. It did take a while to get my appraisal back then, but the refi's were going crazy when the rates were in low 3%.

Good luck!

Another Reader

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Re: Out of state rental. Finance with bank local to me or the property?
« Reply #4 on: January 18, 2017, 04:28:21 PM »
Your local bank or credit union may not do the loan.  They are not in a position to evaluate the collateral.  Recourse is based on the location of the property, not where you are.  Better to establish a relationship with a lender where the property is located or use a low-cost on-line lender like aimloan.  The loan is in your name, not in the name of the LLC, so you are on the hook.

In your shoes, I would start calling lenders where the property is located and get as much information as you can before you decide.


omega13

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Re: Out of state rental. Finance with bank local to me or the property?
« Reply #5 on: January 21, 2017, 02:00:24 AM »
Your local bank or credit union may not do the loan.  They are not in a position to evaluate the collateral.  Recourse is based on the location of the property, not where you are.  Better to establish a relationship with a lender where the property is located or use a low-cost on-line lender like aimloan.  The loan is in your name, not in the name of the LLC, so you are on the hook.

In your shoes, I would start calling lenders where the property is located and get as much information as you can before you decide.

Thank you for your suggestion. I have already started doing that.

The rates seem to have come up. So far I have quotes for a 30 year loan with 20% down at a 5.125% interest rate and a 15 year loan with 15% down and a rate of 4.5%. Going to call around some more.

Thanks again!