Financing Out-of-State Rental Properties: Loans, Terms & Qualification

Financing Out-of-State Rental Properties: Loans, Terms & Qualification
Photo Credit: REI Nation

Investing in rental properties remains one of the most reliable ways to build long-term wealth. And with today’s interest rate environment, investors can still capitalize on real estate. However, obtaining financing poses unique hurdles when purchasing out-of-state investment properties.

“Out-of-state investment properties can be more challenging to finance because lenders have to manage risk without local market familiarity,” said REI Nation CEO Kent Clothier Sr, an industry veteran in rental real estate finance. “Working with specialized lenders is key. They understand factors like cross-state landlord-tenant laws, long-distance property oversight, market analytics and appropriate loan products. Guiding investors to the right financing partners ensures smooth transactions plus portfolios tailored to their current assets and future investment goals.”

While securing financing for a primary home follows pretty standard protocols, investment loans differ greatly. And if you live in a different state than your rental property, several additional considerations come into play around loans, terms, qualification criteria and more.

Loan Types & Terms

The first decision involves loan types – whether to pursue a residential or commercial mortgage. Residential loans typically offer lower rates and down payments of around 5-25%. However, investment purchases have tighter qualification standards.

Commercial loans provide more flexibility for real estate investors. You can qualify through your existing entity or create a special-purpose entity to acquire multiple assets. Rates run slightly higher, but so do loan-to-value ratios, often up to 75-80%. Here again, lenders have tighter qualification standards and rarely work with investors who don’t have a pre-existing relationship with the bank. 

Qualification Criteria 

When financing out-of-state rental properties, lenders scrutinize borrowers more carefully with these central criteria:

  • Debt-to-Income – Measures total monthly debt obligations against reliable income sources. Must range below 50% for approval.
  • Credit Score – Major factor in loan terms/rates offered. Aim for at least 680. Some programs accept scores in the 600s.  
  • Cash Reserves – Plan for 6-12 months of mortgage payments in liquid reserves to cover vacancies.
  • Property Analysis – Thorough evaluation of the rental itself regarding location, comparables, cap rate projections, etc.  
  • Experience – First-time investors may only qualify for one property. Multi-asset financing requires proven experience.

“We have strong partnerships with lenders serving investors nationwide,” said Clothier. “Our team knows what they look for and how to thoroughly prepare each client’s loan file.”

Occupancy Requirements

Some lenders require a 12-month rental history on existing properties before financing additional assets, ensuring reliable cash flow from current holdings. 

For an investment purchase, expect to secure a qualified tenant and initiate a lease before final approval. Institutions mitigate risk by affirming immediate occupancy rather than speculating on demand. The turnkey purchase process provides necessary readiness.   

Building a Relationship 

Those new to real estate investing often struggle to finance out-of-state rentals with large corporate lenders. Approval hinges solely on rigid credit formulas. Regional and community banks offer better alternatives through relationship-based lending. 

“Over the years, we’ve curated a network of trusted lending partners focused on supporting our clients’ investment goals,” commented Clothier. “We leverage these relationships, along with our impeccable track record, to secure financing quickly and efficiently across diverse investor profiles.”

A reputable turnkey company becomes an invaluable ally through informed guidance on loan products, terms and qualification criteria. They also open access to niche programs and specialized funding sources tailored to each investor’s unique financial profile and portfolio objectives.

Getting Pre-Approved

Ideally, you should have pre-approval in place before identifying your investment property. This establishes clear budget guidance on purchasing power. Pre-approvals require less documentation and remain valid for 60-90 days, with quick conversions to formal applications once you have a property under contract.

The best approach is to consult a reputable turnkey provider first. Their financing partners issue pre-approvals specific to out-of-state investment purchases rather than primary home loans. This sidesteps wasted inquiries and unnecessary hard credit pulls.

Discuss portfolio planning. Approval amounts often hinge on investing experience, so lenders need visibility of your overall acquisition strategy rather than isolated purchases.  

Picking the Right Partner

Successfully financing out-of-state investment property requires expertise across property analysis, underlying market conditions, loan products, qualification requirements and special funding sources. 

Rather than tackle this alone, leverage a trusted turnkey company as your guide. Industry leaders like REI Nation maintain preferred partnerships with lenders serving investors nationwide. Their finance team stands ready to discuss your goals, make recommendations and quarterback the entire loan process on your behalf.


Published By: Aize Perez

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