Things Most People Neglect When Buying Out Of State

I’ve purchased 8 out-of-state properties in the past 12 months, and I’d like to think I know a little more than the average real estate investor.  As a former loan officer and current Realtor, I already had a number of advantages over other real estate investors.  Despite this, there were many hard lessons learned over the past year that I intend on sharing below.  I am going to skip the more obvious advice, such as “get a good property manager” since if you don’t know that already, you shouldn’t even consider investing out of state.  So here it goes…

Are you buying in an escrow or attorney state?

Many states, especially in the east, are known as Attorney States.  This means that it’s an attorney who prepares closing docs, is present at closing, and performs other tasks that an “escrow officer” would do.  While it’s reasonable to assume it doesn’t really matter, attorney states add another layer of complexity that one needs to account for in time and money. You’ll need to find a great attorney, ideally one who has experience with out of state investors.  Also, be aware that in attorney states the realtor’s job is essentially over once an offer has been accepted, so don't expect a lot of hand holding after that.  

Does the lender and title company know you will NOT be at closing?

Remind, reiterate and repeat everything to the lender and title company, again and again when it comes to the fact that you won’t be physically present at the closing.  Most lenders and title companies have no issue with borrowers buying in other states, but some have conniptions if you’re not going to be at closing.  Tell them that if they have special requests they will need to accommodate (think mobile notary) and make sure the escrow officer or attorney, realtor, property manager and seller are also aware.

Confirm and re-confirm all fees

Instead of asking what something costs, ask “what assumption for expenses should I put in my excel spreadsheet,” and then ask, what else? The following is a real-life conversation I had with a lender a few months ago:

“What assumption for expenses should I put in my excel spreadsheet?”

“Well we charge 3% points on the loan and 10% interest.”

“What else?”

“There’s an application fee of $250.”

“What else?”

“That’s all.”

“No appraisal?”

“Yes, there’s an appraisal. It’s about $500.”

“Ok, so what else. Please consider all fees even if they are minor, like wire fees, overnight fees, etc.”

“We have a $25 wire fee and $50 to overnight docs.”

As you can see, lenders often neglect to provide a complete list of fees. But by asking what assumptions you should have in your spreadsheet vs. what do you charge, you should get a more complete and honest answer.  Just be sure to press for more and more.  

Who will pick up keys, change the locks and allow future access?

Once the deal closes the listing agent will give keys to your agent.  But if you’re thousands of miles away, what happens then?  You’ll need to have this discussion well in advance of closing and most likely, the property manager and realtor will need to chat directly.

Buying out of state has a vast number of advantages and is far less risky than what people believe.  Like any deal, there are pros and cons, but it’s much more important to be familiar with the closing process since that’s the likeliest place where things will go south.  In short, out of state buyers should prepare to spend a huge amount of time doing other people’s jobs.  And like a certain FBI special agent from the 1990s always said, "trust no one."