Using Bridge Loans for Your Real Estate Investments
Bridge loans are a type of private money funding that serves a specialized niche – those who want to get interim financing until such a time as a permanent loan can be taken. There are times when a bank loan’s processing time is not just fast enough to enable an investor to respond to opportunities that require one to move fast. Also, a traditional loan will have a more stringent set of requirements for one to be qualified to get a loan while a bridge loan is more concerned about the value of the property and not on the borrower’s capability to repay the loan.
Bridge loans are called such because it is designed to “bridge” the gap between purchasing one property and selling it or another property. It can also be used to bridge the gap between obtaining a property at low prices and then getting a more affordable type of funding. This means that bridge loans are basically short-term, usually six months, but can extend for longer as needed.
Some uses for bridge loans
Redevelopment for commercial buildings. A building that is not leased at full capacity will not be a good candidate for a traditional loan. As a real estate investor, you have the chance to get ahold of the property at a low cost, have it re-fitted and more attractive to prospective tenants and then lease it up. A bridge loan can be the financing you need. Once you have a high level of occupancy, a bank will be more willing to grant you a traditional loan, since you have lowered the income risk that is related to the property.
Selling a property and buying another. If you are in the process of selling your property and need to close on another property that you have contracted to buy, a bridge loan can give you the money to close the deals on both. Getting a traditional loan for your current property that you know will only be yours for only a few months will actually cost you more and will be too much of a hassle. However, if you do not make the down payment on the new property, you stand to lose your earnest money. The bridge loan allows you to close on the second property and when your original property has closed, you can repay the bridge loan.
The business of flipping houses. A foreclosed house that has been left in disarray will not be something a bank will invest in. The property may have structural problems and will not be up for re-sale if you do forfeit on the payments. You will need some financing not only to purchase the property but also to have the house renovated and ready for sale. A bridge loan will be a great solution.
Protecting your credit for future investments. If you have an investment property whose mortgage is maturing and its balloon payment is due, you may be faced with a hit on your credit rating if you are unable to make the payment. A bridge loan will help maintain your credit while you are looking for funding on your investment property.
Improving rental properties. If you own rental properties, you can use a bridge loan to finance the renovation of your property. Once you have made repairs, installed newer appliances and upgraded the kitchen fixtures and countertops, you can also upgrade your rental rates as well.
These are just some examples of how bridge loans can provide you with the funding you need to take advantage of the real estate investment opportunities that come your way.