Asset-based Lending Focuses on Cash Flow not Income
By Gregory Dineen, Head of Credit and Underwriting, B2R Finance
If you’ve ever tried to buy a house in San Francisco, New York City or Washington, D.C., you know what an expensive proposition that can be.
A recent study from HSH shows a person would have to earn an annual salary of $142,448 to afford a median-priced home in San Francisco — the nation’s most expensive market — assuming the buyer spends 28 percent of their monthly income on housing and is able to make a 20 percent down payment.
The good news for investors of rental property is that there is a type of financing known as asset-based lending that allows investors to qualify for a loan based on the cash flow of their property — rather than personal income, which is used by most residential lenders requires proof of a salary (typically through W-2 forms and several years of tax returns) and often limits the number of homes an investor can purchase.
Asset-based lending has recently become available nationwide to owners of single-family rentals, two- to four- unit properties, condos and townhomes; making even the most expensive markets within reach for investors.
An asset-based lender will perform a cash flow analysis to determine the loan proceeds available to a qualified investor. This process includes verifying the property’s rent and subtracting typical property expenses such as real estate taxes, insurance and maintenance costs to determine how much cash flow is available to make monthly payments. The value of the property along with an applicant’s credit history will also be considered during the underwriting process – similar to a traditional residential mortgage.
Because each property is analyzed based on its own income and expenses, qualified investors can access financing for properties individually or leverage cash flows across portfolios of properties to maximize loan proceeds.
In this way, asset-based lending provides an excellent option to unlock equity in existing rental properties or to access financing to acquire new properties. Real estate investors who invest in rental properties for a living or simply as a way to supplement other sources of income are finding asset-based lending to be a powerful tool to help achieve their investment goals.
B2R Finance offers rental investors innovative lending products to help unlock equity from existing portfolios and provide the cash needed to build rental portfolios nationwide. For more information about how B2R can help you obtain rental property financing, just call 800-227-8107 or visit www.b2rfinance.com/borrowers and follow us on Twitter @B2RFinance.
The information on this page is provided for informational purposes only and does not constitute investment, real estate, or legal advice. This information should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. No representations or warranties whatsoever, express or implied, are given as to the accuracy or applicability of the information contained herein. The information may be modified or rendered incorrect by changes in the marketplace or developments in the law, or for any other reason, and may not be applicable to any individual reader’s facts and circumstances.