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If you are a real estate investor looking to grow your portfolio, then you should know about Bridge Financing. Bridge Loans are a great tool that allow investors to secure more opportunities in the market and diversify their portfolios. There are also many benefits to using bridge loans that are not provided by other types of financing, which can make them the perfect solution for your deal. Interested in utilizing a bridge loan for your next real estate investment? Continue reading to learn more.
The Basics of Bridge Loans
Before you dive into your next real estate investment financed with a bridge loan, you should be familiar with their basics. Bridge loans are a form of short-term financing, with periods ranging from 6 – 24 months. They are provided by private lenders (that often operate in the real estate space) as opposed to traditional lenders like banks or credit unions. This is also what gives them flexibility and other benefits over traditional mortgage loans. Note that due to their short-term nature, bridge loans also come with higher interest rates than standard 15 or 30-year mortgages.
Bridge Loan Advantages
Bridge Financing provides investors with benefits that other loan programs don’t offer. Unlike mortgage loans, bridge loans are backed by collateral (typically the property you are looking to acquire) which also gives them more flexibility with approval and terms. They have a more streamlined application process which can deliver funding much faster than traditional loans. Bridge loans are intended to help “bridge” the gap between financing a deal and securing more permanent financing for it. This give investors the chance to move on opportunities when they otherwise wouldn’t have been able to, like for example when their funds are tied up in another deal.
Bridge Loan Opportunities
There are more opportunities that become available to investors when they know they can utilize bridge loans. Along with providing investors with quick funding, they can also help fund fix and flip investments. While most traditional loans only cover acquisition costs, bridge loans can provide enough funding to cover both renovation and acquisition costs. Their shorter term also makes more sense for a flipping project where you’ll be reselling the home quickly. Bridge loans may also be used to stabilize the rent of a neglected multifamily property, allowing you to make renovations to it before seeking out long-term financing.
Managing Risk with Bridge Loans
While bridge loans are a great tool that allow investors to expand their portfolios, there are also potential drawbacks that you need to be aware of if you plan to use this type of financing. We already mentioned how bridge loans have higher interest rates than standard mortgage loans, so you’ll need to factor this into your calculations when determining the profitability of a deal. Since these loans have shorter terms, you will also need to be confident in your ability to either resell your property or secure permanent financing by the end of the loan period. You don’t want to end up having to make modifications to your loan, if your lender will even let you, since these modifications often come with high fees or increases to an already high interest rate.
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 todayto discuss your next real estate investment.