Financing out-of-state properties

[Tommy N.]

Hi all,

I live in California and am looking to invest with my sister in properties located near her in Colorado, and I had a couple questions about financing. (I'm a fairly newbie investor, still trying to learn/digest as much as I can about investing, so please bear with me if these are basic questions.)

When you invest in a distant property, is it better to find a lender who is geographically closer to you (so it's presumably a quicker turnaround for you to communicate with them), or is it recommended to use one that is closer to the actual property/city/state (since they may be better calibrated to the local property values/appraisals/laws/etc.)? Or is location completely a non-issue and you can choose whomever you like best?

Secondly, when you partner with someone, do you both need to secure the loan through the same lender or can you each use your own lender? (And if you can choose, is doing one better than the other?) Any info or insight would be much appreciated!

[Michael Seeker]

@Tommy N., are you guys buying this property with an entity (LLC for example) or just as a joint purchase? Will the property be more than 4 units or not? The answer to these questions will influence the answer to your questions as follows:

With an entity and/or 5+ units

You'll want a lender local to the property and will need a commercial loan.  Most will require that you both personally guarantee the loan.

No entity and <= 4 units

You can use a conventional lender which is really any bank that will do a normal residential mortgage.  It shouldn't really matter if the bank is local to you or the property.  The bank may not require you both to be on the loan, however you really can't get separate loans.  So you may be able to only have her on the loan or only have you on the loan, but I've never heard of a situation where you could get 2 separate loans and it's not worth considering further.

General

Generally speaking, you shouldn't "need" to go into a bank to have a conversation with a lender or provide documents.  Very rarely do I actually meet with a lender before I get to the closing table for the first time with them.  You should be able to do everything via email and phone which simplifies things for everybody involved.  Some commercial lenders will want to meet before proceeding with a loan, in which case your sister (assuming she's local to the property) could meet with them and you could still email/fax any pertinent documents.

I have out of town partners that have personally guaranteed every loan for every property our LLC has purchased but have never been to a closing or met any of the lenders.