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.