The Bridge to Your Next Investment: Why Bridge Loans Matter

Have you been running into trouble securing financing for your next real estate venture? Maybe you’re trying to finance a neglected property that banks would rather pass on. Or maybe you’ve got a great deal that you need to move on quickly, and you just don’t have the time to wait for a mortgage approval. Luckily, there is an alternative financing solution perfect for these complex scenarios. We’re talking about Bridge Loans, and in this post we’ll cover why bridge loans matter, and how they can become the key piece of your next real estate investment.

What Are Bridge Loans?

Bridge loans are a form of financing provided by private lenders as opposed to a traditional lender, like a bank or credit union. They come with more customizable loan terms and a faster approval process because they are secured by collateral, which is often the property being financed. Bridge loans are shorter in duration when compared to mortgages, and they typically range from 6 to 24 months with some flexibility. They appeal to investors because of their customizable terms which allow them to finance a wider range of scenarios than traditional financing options.

The Importance of Timing in Real Estate

Let’s talk about one of the greatest benefits bridge loans provide: speed. While standard 30-year mortgages can take weeks or even months to be approved, a bridge lender can deliver funds to you in as little as 2 weeks after submitting an application. For certain investments, there is a large opportunity cost to bear if you aren’t able to fund the deal in time. Bridge loans give investors a major advantage, which is all the more important in today’s competitive real estate environment.

How Bridge Loans Facilitate Real Estate Investing

Bridge loans provide many other benefits aside from quick approvals. You may be in a scenario where you’ve come across a really great deal, but your funds are tied up in a sale or another investment. A bridge loan will allow you to move on the opportunity now, and repay the loan once you have secured more permanent funding.

Bridge lenders are also more flexible with loan terms since there is collateral to back the loan. This means you can fund properties that banks might pass on (like older or neglected properties in need of repair), and your personal credit history is less of a factor for loan approval.

Unique Scenarios for Utilizing Bridge Loans

The great thing about bridge loans is that lenders are not as selective about how you’re planning to use the funds. This allows an investor to use bridge loans for some unique funding scenarios. We mentioned how bridge loans can be used to fund renovation projects, and they are one of the only options available for funding fix and flip investments. Bridge loans may also be used to improve an existing property you own, giving you time to stabilize its’ cash flow before securing long-term funding. Business owners have even used bridge loans to help cover operating expenses until they’re able to stand on firmer financial ground.

Risks and Considerations

There are, however, some risks you should be aware of if you plan to use a bridge loan for your next investment. Bridge loans have a much shorter loan period than traditional mortgages, which means you will need to have permanent funding in place at the end of the loan’s term. If you aren’t confident in your ability to secure long-term funding for your project, such as through selling an existing property, then you are better off avoiding this type of funding. The short-term nature of these loans also means an elevated interest rate, and you’ll need to consider these additional costs in your budget calculations. There are also markets risks like seasonal activity to consider, which can affect all types of real investments and are not limited to bridge lending scenarios.

How to Get Started with Bridge Loans

If you have all your ducks in a row and are ready to seek out a bridge loan, here’s how to get started. First, take the time to research some private lenders that specialize in funding real estate deals, and see if they offer a short-term bridge loan program. Then, you should compare the various loan offers you receive so you can secure terms that best fit your deal scenario. You should also take time to look into the lender you are working with to ensure they are a reputable organization with a proven track record of delivering funding. The sign of a quality lender is one that can offer you additional benefits, like resources or connections in the real estate space to help you with your project.

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.