Conventional Rental Loans vs 30-Year Asset-Based LLC Loans

[Nghi Le]

A lot of people on real estate forums get confused between different long-term loan options for refinancing a BRRRR, especially between conventional mortgages and 30-year asset-based loans (typically from a national hard money lender). You have to first identify what kind of loan you're looking for (or talking about) before you compare terms so that you can actually compare apples-to-apples. They each have their pros and cons, highlighted here:

Keep in mind that we are talking about non-owner occupied investment loans; I still see several cases of investors shaming each other because one got a 2.5% interest rate on their primary residence while the other got a 3.5% rate on an investment property conventional loan.

The main point is that conventional loans are going to be your cheapest option for a 30-year loan, but they are more of a headache to get. Asset-based loans are faster, more flexible, and less docs (i.e. no tax returns, no pay stubs, etc), but at a higher cost.  Someone who doesn't have a strong, stable income (or even no income) would probably want to go towards the asset-based side, whereas if you have a strong W2, don't own too many assets, or the property doesn't cashflow well, the conventional route may make more sense.

There are also commercial/portfolio loans (typically from banks), which is a different world.  They are harder to generalize since each of them make up their own rules, and there are so many of them, most of which are pretty localized (i.e. just because someone found a bank with amazing terms in TX doesn't mean someone in IA can get that).  However, they are usually somewhere between conventional and asset-based, although with shorter terms and amortizations (which can affect your ability to cashflow and ultimately the loan amount that you can get).  I've found that banks in general (outside of conventional mortgages) have been a bit unreliable since COVID; I'm still waiting for them to fully recover.