How Bridge Loans Help Empower Real Estate Investors

Bridge loans are a financing tool that give investors access to more opportunities, and are a flexible funding option that can be utilized in a variety of ways. Their speed and relatively simple approval process can also be very beneficial in time sensitive deal scenarios. For real estate in particular, bridge loans are incredibly useful since they allow investors to capitalize on multiple properties simultaneously. By adding bridge loans to your financial tool belt, you are able to secure lucrative investments that you would not have been able to before. Read on as we discuss the ins-and-outs of bridge loans, and how they help empower real estate investors.

The Role of Bridge Loans in Real Estate Investments

A bridge loan is a short-term loan offered by a private lender rather than a bank or traditional financial institution. With a loan period ranging from 6 to 24 months, they are traditionally used to cover or “bridge” a gap in financing. They are also commonly used to fund short-term investment projects, like fix & flips. Since they are offered by private lenders, bridge loans often have a simpler application process, which allows them to be approved in significantly less time than bank loans.

Bridge loans are asset based, which means they are secured by owned property as collateral, typically the home being financed. This helps give bridge loans more flexibility in approval. Lenders will be more interested in the deal itself and whether it makes good financial sense as opposed to the property’s condition or your personal credit history. So, even if you are denied for a traditional loan from a bank, you may still be able to get approved for financing with a bridge lender.

Benefits of Using Bridge Loans

What benefits do bridge loans provide when compared to traditional mortgage loans? Well, we already mentioned how bridge loans can be used cover a gap in financing. We also discussed how bridge loans have less stringent criteria for approval, which gives investors access to more opportunities in the market. Bridge loans are inherently a flexible financing tool, which means lenders are more willing to work with you to customize loan terms to your specific deal. Also, since bridge loans have a shorter application process, they can be approved quicker, allowing investors to move on time-sensitive deal scenarios.

Applications of Bridge Loans in Real Estate Investing

There are a number of ways investors can use bridge loans to supercharge their portfolios. Let’s say that you’re in the process of selling a home, but have found another great property that you would like to purchase. A bridge loan gives you the funding to make the deal, and gives you the time to repay the loan once you have more permanent funding in place. Bridge loans are also one of the only financing programs specifically designed for home flipping, providing additional funds for renovations on top of acquisition costs. You can even use a bridge loan to increase your leverage in a previous project, like for making major repairs to a large multifamily property. Most banks would not be willing to approve a loan for this type of project, as they would view the investment as too risky.

Overcoming Challenges with Bridge Loans

Bridge loans are able to provide many advantages to real estate investors, but you should also be fully aware of the risk associated with using this financing tool. First, know that bridge loans tend to have higher interest rates than standard loans due to their short-term nature. You will need to factor the added expenses when calculating your investment returns to ensure your deal remains profitable. Also, you’ll need to be sure you’re able to repay the full amount by the end of the loan period, whether this means selling the property or taking out a long-term loan. If you aren’t confident in your ability to get financing or offload the property quickly, you are better off avoiding this investment tool.

While using bridge loans allows investors to supercharge their real estate portfolios, you will still need to exercise caution and do your due diligence, as with any other investment. Taking the time to research the property, along with the lender and loan program you have chosen, can help you avoid a bad investment decision. Proper budgeting and planning beforehand will also contribute to your project’s success. A well-informed investor is able to use bridge loans appropriately, empowering them to make more deals and ultimately more money.

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. Connect with us today to discuss your next real estate investment.