Bridge loans are a powerful tool investors can use to expand their portfolios in a number of scenarios. These short-term loans are often used to “bridge” a gap in an investor’s finances, but they can also be great for financing fix & flip projects and closing time-sensitive deals. Their speed and flexibility are unmatched by any other form of real estate financing. Do you have a real estate deal you’re struggling to find financing for? Continue reading to learn how a bridge loan can be the perfect financing solution.
Bridge loans are a form of short-term financing, often ranging from 6 to 24 months in duration, and provided by private lenders as opposed to traditional institutions like banks or credit unions. Bridge loans are known for their speed, providing investors with the quick delivery of funding to help them secure time-sensitive opportunities. They are also growing in popularity for home flipping because their short-term nature is ideal for these projects. Unlike traditional mortgages bridge loans are secured by collateral, often the property being financed, and this allows lenders to be more lenient when it comes to loan approval and terms. It also means more flexibility with the types of deals that can be funded when using one of these loans.
Bridge loans were originally designed to help organizations fill gaps in their finances, giving them time to secure more permanent funding. Investors use bridge loans in a similar way, allowing them to purchase a new property before selling an existing one. This can be great if you have found a lucrative opportunity you want to move on while giving you time to complete the sale of a property you already own. Investors have also been using bridge loans in a few key scenarios:
There are many advantages bridge loans provide to investors over traditional financing options. Their speed is one of their greatest benefits, and while traditional loans can take weeks or even months to be approved, bridge loans can be approved with funds delivered in as little as 10 days. They also provide significantly more flexibility than traditional financing options. Lenders will generally be more interested in the investment potential of the property being financed than your personal creditworthiness. Plus, since they are secured by collateral, lenders can be more lenient with the types of projects they will finance, and this includes renovation projects, paying off debt, and increasing leverage on existing investments.
Although bridge loans can be an incredibly useful tool in real estate investing, they also come with some risks that you should fully understand before utilizing them. First, due to their short-term nature, bridge loans tend to come with elevated interest rates when compared to their long-term counterparts. You will have to compensate for these higher financing costs when making estimates for your project, otherwise, you can end up with significantly less of a return than you’d expected. Additionally, you should be confident in your ability to repay the loan before the end of the loan period. If you aren’t sure you’ll be able to sell an existing property or secure long-term funding, you may be better off avoiding this type of loan. Just as with any other investment, research, planning, and an appropriate amount of due diligence will help to ensure financial success.
Do you have a real estate project you would like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance an investment with a bridge loan, RCN Capital has competitive loan options available.