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Asset based lenders are lenders that work exclusively with real estate investors. Asset based loans are considered business loans. Direct asset based lenders cannot originate consumer loans. That means that you cannot use them to finance your primary residence. Asset based lenders do not exist to promote homeownership. Their goal is to offer asset-based transactional financing to real estate investors looking to get from point A to point C. Point A is usually a purchase of distressed property and point B is the renovation of such property. Point C is the sale of this newly renovated property for the maximum price tolerated by the local market.
Asset Based Pros:
Primarily used to finance distressed properties.
The most obvious reason to use an asset based lender vs a traditional bank is to finance a property that does not qualify for traditional loans. Many conventional lenders do not want to lend on properties that require repair, no matter how much you’re willing to pay them. Such properties are often listed in the MLS with disclosures such as “investor financing only,” “sold as is,” or “handyman special.” These are the code words that indicated that the property would not pass an inspection required by a bank. In contrast, direct hard money lenders specialize in financing such properties.
Hard money offers are equivalent to cash offers.
In real estate investing cash rules. If you’ve done some real estate investing in the past, you know that sellers prefer cash offers. Why? Because they come with fewer strings attached. There is no need to do extensive home inspections. There is no need to wait and see if a traditional bank would approve a loan or not. A cash offer is an offer that is most likely to close. This is exactly why it’s also an offer the seller is most likely to accept.
Proof of Funds by a reputable asset based lender make you a strong buyer. They give you a rare opportunity to compete with cash buyers and put you on the same footing with even the most well-heeled real estate developers.
Super Quick Closing.
Early this year, the interest rates hit an ultimate low. This prompted many to refinance some of their own investment properties. Or should we say “attempt” to refinance them. With traditional banks, in the current time, the closing process can be upwards of 90 days.
No sellers in the right mind would wait so long. But unfortunately, this is a reality when you are using a conventional type of financing. This is where the main difference between asset based lenders vs traditional banks. The asset lending process is designed to close your loan as fast as if it were a cash offer. There are no lender-mandated home inspections, no income verifications, no recession periods.
Any reputable asset based lender should be able to easily close within two weeks as well as accommodate more urgent closing time frames.
