Is a bridge loan the optimal funding type for your real estate investing needs?
While long popular in the sophisticated commercial real estate market, bridge loans have often been overlooked by residential investors. So, what are they? How are they different from the mortgages and lines of credit you are used to? What can you use this time of real estate financing for?
Bridge Loans 101
As the name suggests, this type of loan offers a financial bridge from one project to the next, or from one milestone to another.
Bridge loans are shorter term loans which typically leverage and are collateralized by existing equity. So, asset based loans.
These are offered by commercial real estate specialists and savvy private money lenders. You probably won’t find them at the retail counter in your local bank or from the average residential mortgage lender or broker.
How Are Bridge Loans Different?
A bridge loan is probably most differentiated by its length. 12 to 36 months may be common, depending on the purpose and scenario.
This bridge can be created by leveraging equity in existing real estate assets, without needing to retire or refinance existing mortgage liens. Or without having to take out a conventional loan on a new acquisition. These may be collateralized against individual SFR or MF properties. Or in the form of a blanket mortgage secured by 10 properties to free up even more cash.
This can be much more efficient and cost effective for investors. Providing essential liquidity to take advantage of limited time opportunities, without stretching capital reserves too thin.
When To Use Bridge Loans
These are some of the most obvious use cases for bridge loans.
New Property Acquisitions
You may need additional capital to make the down payment on a new acquisition. The deal may be irresistible, but there may not be time to sell and liquidate another asset. Or the property being purchased may not yet qualify for ideal long term financing.
Renovations
Perhaps the property you own or are purchasing needs repairs and improvements. Other loans may not provide enough cash to cover the rehab. This is a short term lifeline to get the work done and lift the value so that you can flip the property.
Stabilizing Multifamily Rentals
Many of the multifamily properties ripe for acquisition and repositioning won’t qualify for anything near attractive long term financing that will produce great cash flow and yields. It may need substantial repairs and improvements or the recent performance may have been terrible and far under its potential. A bridge means gaining the funds and time to make the improvements, fill the property with market rate tenants and prove performance. Then you can lock in optimal financing for cash flow and yields for the longer term.
Check out our multiple bridge loan options today and discover what they can make possible for you…