The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: omega13 on January 17, 2017, 10:42:59 AM
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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.
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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!
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Thank you for your input. I had not heard of aimloan before. Their reviews on yelp (https://www.yelp.com/biz/aimloan-san-diego-3), such as the one below, don't seem promising. What was your experience like?
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.
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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!
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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.
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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!