If you are planning to invest in real estate, you might have heard about asset-based lending. There are lots of real estate financing and each of them is designed for different investing purposes. So, asset based lending for real estate is a type of financing option where the asset secures the loan.
For real estate investors, the asset is the investment property. Asset-based lenders help real estate investors to get loans that don’t require a traditional mortgage.
HOW ASSET-BASED LENDING WORK?
Asset-based lending for real estate depends on the real estate assets and uses them for financing. The lender performs deep analysis to find out the property’s value as an asset after receiving all the necessary documentation. The lender figures out the rental income and legal expenses such as insurance, property taxes, and maintenance.
This analysis helps to find out the amount of loan. And, it can be about 70% LTV (loan-to-value). Most of the asset-based loans have a term between 1 and 5 years. This timeframe is enough to prepare for the property resale or refinancing.
INTEREST RATES AND DOWN PAYMENTS:
Interest rates vary with the type of project, location, asset value, and one lender to another. In short, when you opt for an asset-based loan in expensive areas, you get higher interest rates compared to an affordable county or state. Almost every lender knows how risky asset-based loans than other financing options are. As such, they require a down payment from the borrower.
In general, a borrower needs to put down up to 20% of the real estate’s value to secure the loan. This method encourages both the lender and borrower to put extra effort into the project and make it a success. Depending on the lender and type of project, borrowers can get funds for up to 100% of their asset value.
QUALIFICATIONS FOR ASSET-BASED LENDING FOR REAL ESTATE:
You don’t have to provide an in-depth application process involving lots of pages on your financials to the lenders. But thorough property documentation and the investor’s plan to manage it are required. To find out the loan amount and interest rates, the lender considers the objective for the investment, expected ROI (return on investment), repair value of the asset, and the exit strategy of the investor.
When an investor provides all the financials and documentation, the lender finds it easy to scrutinize every aspect. The approval process for these types of loans is much shorter and easier compared to traditional real estate financing.
ADVANTAGES OF ASSET-BASED LENDING:
Investors benefit from asset-based lending, especially those who are planning to leverage cash flows across many assets and maximize loan proceedings. Here are some advantages to the investors.
* Low down payments
* Quick turnaround
* Loan qualification is based on asset and not on credit
* Financing independent of business or personal assets
WHY CHOOSE ASSET-BASED LENDING?
The primary reason for opting for asset-based funds is that the loans are dependent on the project rather than the borrower’s credit history and income position. Having a strong strategy in place along with good after-repair value, you can get success with asset-based loans without hurdles.