What Is Asset-Based Lending for Real Estate?
Asset-based lending for real estate is when a borrower offers real estate as security in exchange for a loan. In many ways, it’s similar to a traditional mortgage, wherein a borrower finances the purchase of a home through money provided by a lender, using the home as security for the loan.
However, asset-based lending for real estate doesn’t have to use the home being purchased as collateral. For example, if you already own a property free-and-clear (meaning there is no lender with any sort of claim on it), you could use that real estate as collateral to secure a loan for purchasing another.
Asset-based lending is used for all kinds of other business deals, too. For example, it’s not uncommon for people to take out second mortgages on their homes so they can start a business or use their company’s equipment to pay for another location.
4 Reasons Investors Turn to Asset-Based Lending for Real Estate
On paper, an asset-based loan is a fairly simple and straightforward form of financing. As long as you have an asset to use as collateral, it’s also open to just about any kind of borrower.
So, why would real-estate investors who want to build big portfolios choose this option? There are actually four unique reasons asset-based loans have become so popular among these investors.
1. Shorter Timeframes to Close
When an investor finds out how quickly they can receive asset-based lending for real estate, that’s usually brings an end to them every applying for another conventional loan.
Veteran investors know that every day matters when you find a winning property. Nothing is more frustrating than having to wait and wait until a lender finally decides you’re qualified and provides you with a loan. Typically, the process takes several weeks. It can easily take much longer, though.
On the other hand, it typically takes about a week to receive an asset-based loan for real estate. Often times, it actually takes even less time than that. That can make all the difference if you’re hoping to purchase from someone who wants to close quickly or there’s some other time-sensitive opportunity you want to take advantage of immediately.
2. Credit Isn’t a Concern
Another reason investors love asset-based lending for real estate is because they can receive their loan without having to worry about any credit issues getting in the way.
This might not seem like a big deal if you’ve never bought a rental property before. However, for investors with portfolios that include multiple properties, credit scores can often fluctuate, making it difficult to qualify for a mortgage – at least with decent terms – through a traditional lender.
Fortunately, this isn’t a problem when applying for asset-based lending for real estate because lenders who offer those kinds of loans don’t care about your credit. They have no reason to because you’re using property as collateral.
In other words, they’re less concerned about whether or not you can pay back the loan (which your credit score would represent) because, in the worst-case scenario, they could just sell your assets to recoup their funds.
3. Your Portfolio Quickly Can Expand Quickly
Both of these benefits combine for another major advantage of asset-based lending for real estate, which is that they’re one of your best options if you want to expand your rental-property portfolio quickly.
With each property you pay off, you can use an asset-based loan to immediately secure more funds, which can be used to buy more properties.
As credit is never an obstacle and you won’t have to wait a month or more to receive your money, you can add more rental homes to your portfolio right away.
4. There Is No Limit to the Amount You Can Borrow
As we touched on above, many real estate deals are time-sensitive. Nothing is worse than missing out on an amazing opportunity because your lender couldn’t come through with a loan quickly enough.
Another very common problem with lenders is that they’re restricted by how much they can lend you. This is another reason many investors often have to pass on incredible opportunities. Unless you have enough cash lying around to significantly increase the size of your down payment, you’ll simply have to take what your lender is willing to offer.
It’s almost always a good idea to make as large a down payment as you can reasonably afford, but an asset-based loan won’t depend on this initial sum.
Again, the most important factor a lender will look at is the asset – or assets – you put up to secure the loan. The higher they value it, the more money you can hope to borrow. So, if an especially enticing – but expensive – opportunity presents itself, you’re only limited by the value of the assets you own.
Ready to Take Advantage of Asset-Based Lending for Real Estate?
Are you excited about the prospect of taking advantage of asset-based lending for real estate?
If so, we’d love to talk with you. At Rental Home Financing, we specialize in helping real estate investors who want to continue adding to their portfolios but are struggling to secure financing through traditional lenders.
Start our quick and easy loan application process today and we’ll get back to you ASAP, so you can begin adding to your real estate portfolio right away.