In today’s competitive real estate environment, investors need a reliable source of financing that can be accessed quickly. This is where a bridge loan can become an incredibly useful tool in an investor’s toolbox. Aside from offering quick approval, these short-term loans are multi-purpose and can be used to finance a wide variety of real estate investment projects. Want to learn more about this powerful financing tool? Let’s cover the basics of bridge loans, scenarios where they shine, and some tips on how to use them effectively.
Bridge loans are a short-term financing solution that is backed by collateral, which is typically the property being financed. This gives lenders more flexibility with the loan, so that they can be approved faster, and there are less stringent requirements for loan approval. Bridge loans were originally used to “bridge” gaps in an investor’s finances, such as purchasing a property before completing the sale of an existing one. They can be used for a number of different real estate scenarios, however. For instance, their shorter loan period makes them perfect for fix and flip investments, and they can provide additional funds to cover renovations on top of acquisition costs.
Investors make use of bridge loans to seize opportunities in the real estate market that they otherwise wouldn’t have access to. Here are a few ways investors have been utilizing bridge loans to strengthen their portfolios:
There are several advantages to using a bridge loan over a conventional mortgage. Since these loans are secured by collateral, they offer faster approval times, which when combined with a less stringent application process means that projects can be funded in as little as two weeks. These loans are also more versatile than conventional mortgages, and can be used for a wider range of deal scenarios. These benefits can give investors a competitive edge, which is especially important for those looking to secure investments in fast-paced markets.
As with any other investment, doing your due diligence helps ensure that you will find success when using a bridge loan for a real estate project. Choosing the right lending partner is an incredibly important step in this process. Be sure to look into your lender’s reputation, and also read customer reviews to get an idea of what working with them will look like. A trusted lender will have a proven track record of delivering financing for real estate investments, and will also be able to provide you with additional resources, such as planning tools or connections to facilitate your deal.
It's also crucial that you have an exit strategy in mind for your property before you apply for a bridge loan. Due to their shorter loan period, you should already have a plan to repay the loan before this term ends, whether it’s through the proceeds of a sale, or refinancing to obtain long-term loan coverage. Plus, since bridge loans typically have higher interest rates than traditional counterparts (because of their shorter term), it’s important that you factor these elevated costs into your budget and return estimates.
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.