Real estate investing can be very rewarding, but finding a reliable source of financing for your real estate ventures isn’t always easy. Mortgage loans often come with stringent requirements and a lengthy application process that is not suited to many types of real estate projects. Most banks will not even consider lending on a fix and flip property as they’ll deem the investment too risky. This is where alternative funding options, such as bridge loans, come into play. By utilizing financing programs offered by private lenders, investors can gain access to opportunities in the real estate market that otherwise would not have been available to them. Here’s how.
Bridge lending refers to financing provided by a private lender as opposed to a traditional lender like a bank or credit union. Bridge loans are intended to cover or “bridge” a gap in one’s finances. Unlike traditional financing options bridge loans are secured by collateral, typically the property being financed, and have shorter loan periods ranging from 6 to 24 months. This quality allows bridge lenders to be more flexible with approval, and the short-term nature of these loans make them suitable for renovation projects like home flips.
One of the greatest advantages of bridge loans is their ability to deliver funding quickly, whenever you may need it. Business owners often make use of bridge loans to cover expenses while they build up their revenue sources. Similarly, there will be times when your funds are tied up in other investments, preventing you from having access to liquid capital. Bridge loans can be the perfect solution to your temporary problem. By working closely with your chosen lender, funding can be delivered in as little as 10 days.
Bridge loans are great for securing time-sensitive investment opportunities, thanks to their streamlined application process. Let’s say you have come across a great property that you know won’t last on the open market, but you also know a standard mortgage loan will take too long for approval. A bridge loan can give you access to immediate funding while giving you time to repay the loan once you have more permanent financing in place. Private lenders understand that time is of the essence with a real estate investment, and having easy access to funding is crucial for gaining access to these lucrative opportunities.
The other great benefit of using bridge loans is they have more flexible loan terms. For example, qualifying for a loan is less dependent on your personal credit. Since these loans are asset based, your approval will be determined by the investment potential of the property rather than your financial history. Also, loan terms can be tailored to your project’s specific needs, unlike traditional financing options. Both the loan timeline and leverage amount can be customized to ensure you don’t waste any of your capital on financing costs. Be sure to work closely with your lender to find a financing program that fits your investment perfectly.
Home flipping presents a great opportunity for investors since it can provide them with substantial returns in a short timeframe. Obtaining financing for a fix and flip investment is another story. Traditional lenders tend to shy away from these investments as they view them as too risky when compared to a standard 15 or 30-year mortgage. You may be able to finance a home flip with a bridge loan, however. Bridge lenders are more willing to lend of renovation projects, and can offer financing programs that cover renovations expenses on top of acquisition costs.
Before diving into your next investment with a bridge loan it will be helpful to fully understand the risks associated with this type of financing. These loans are often issued for periods of less than 12 months, so you should be confident you’ll be able to sell your property, or at least secure permanent financing for it by the end of the loan period. Also, due to the short-term nature of bridge loans, they often come with higher interest rates than standard mortgages. You will need to factor these higher costs into your projections as they may affect the profitability of your investment.
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.