Here’s How You Can Fast Track Your Real Estate Deals with Bridge Loans

Here’s How You Can Fast Track Your Real Estate Deals with Bridge Loans

There is a financial tool available to real estate investors that helps them secure more deals and get involved in projects when they don’t have the immediate funds available. Bridge Loans are an incredibly powerful financing program designed to provide quick funding for real estate deals and other business ventures. But unlike traditional mortgages, they are short-term, easier to qualify for, and can be used for a wider variety of purposes. However, there still aren’t enough investors using this tool to supercharge their portfolios. In this piece, we break down the ins and outs of bridge loans and share some ways that real estate investors can use them to fast track their deals.

Graphic of plants growing on coin stacks next to real estate

What is a Bridge Loan, exactly?

A bridge loan is a form of short-term financing issued for periods ranging from 6 to 24 months, and backed by collateral. For real estate, the collateral is typically the property being financed by the loan. They were originally created to help business owners “bridge” gaps in their finances, giving them time to secure more permanent funding. They are also incredibly useful for real estate purpose since they allow investors to participate in projects when they otherwise wouldn’t have been able to. For example, using a bridge loan, an investor can purchase a new property before selling an existing one.

Benefits of Bridge Loans for Real Estate

There are a number of unique benefits that bridge loans provide specifically for real estate. Bridge loans are designed to be approved quickly, with a streamlined application process that gives investors the chance to secure more time-sensitive deals. They are also more flexible than traditional mortgages with the types of properties that can be financed. On top of this, because they are secured by collateral, your personal credit is less of a factor. Finally, due to their short-term nature, bridge loans are the ideal financing tool for shorter fix and flip and value-add projects.

How Bridge Loans Work

The application process for a bridge loan is somewhat different than when applying for a traditional mortgage. First, you will most likely be working with a private lender that operates as opposed to a traditional bank or credit union. Due to their short-term nature, bridge loans also tend to have slightly higher interest rates than standard 15 or 30-year mortgages. We mentioned how these loans are secured by collateral, which allows them more flexibility in the types of properties that qualify for financing, and the creditworthiness of the borrowers. Although lenders are often flexible with loan terms, such as offering interest-only monthly payment options, loans are expected to be paid in full at the end of the term. You can work with your chosen lender to find a timeline that works for your investment.

How Investors Use Bridge Loans

Investors have been using bridge loans in a variety of ways to help supercharge their real estate deals. They are most commonly used when funds are tied up in other investments, allowing them to move forward with a purchase and repay the loan once more permanent funding is secured. This allows investors to capitalize on time-sensitive opportunities which might disappear if they aren’t acted upon right away. Bridge loans are also one of the only financing options available for short-term fix and flip investment projects, and many lenders offer additional funds to cover renovations on top of property acquisition costs. Bridge loans can even be a great option for value-add opportunities, like for example, if you own a multifamily property and you would like to make renovations to stabilize or improve your cash flow. There are many creative uses for this type of financing program, and most of the time loan terms can be customized to fit your project’s specific needs.

Tips for Using Bridge Loans Effectively

Here are a few tips for making the most of a bridge loan:

  • Evaluate your needs: First, you should realistically assess your situation and determine if a bridge loan is right for you. The short-term nature of these loans often means a higher interest rate, and you don’t want to get stuck paying two mortgages at the end of the loan period.
  • Choose the right lender: There are a variety of lenders that offer bridge financing, and many of them already have experience in the real estate space. Be sure to shop around and find a financing program that’s right for you. The mark of a good lender is one that can offer you additional resources and support, such as connecting you with real estate professionals to ensure a smooth investment.
  • Plan your exit strategy: Having a clear plan for how you are going to repay the loan is important, whether it’s the sale of an existing property or securing a long-term loan. If you aren’t confident in your ability to secure financing, you are better off avoiding a bridge loan.

Potential Risks and How to Mitigate Them

There are also some inherent risks to be aware of with real estate investing, including some that are specific to bridge loans. We mentioned how bridge loans typically have higher interest rates than long-term loans, so you’ll have to factor these extra costs into your budget calculations. There is also the possibility of a market shift which can affect the profitability of your investment. Careful planning and market research is the best way to avoid this type of problem. Along with that, it may help to have a contingency plan for your investment in case your first line of action doesn’t go as planned.

RCN Capital

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.