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There is a powerful tool available to real estate investors that allows them to fund property deals faster and easier than applying for a traditional mortgage. This tool is known as a bridge loan, or bridging loan, and it’s a financing program primarily offered by private lenders and intended for investment purposes. The loans are short-term in nature, as opposed to the 15 or 30-year period of a bank mortgage. They are also asset based which means they are easier to qualify for and can be approved faster. How can investors use bridge loans to their advantage in the competitive real estate market? Continue reading for 5 real-life examples.
Scenario 1: Buying a Fix-and-Flip Property
Fix and flip projects, commonly known as home flips, are one of the ideal use cases for bridge loans due to their short loan term. You can work with a lender to customize the loan to your project’s timeline, and many lenders offer programs specifically designed for flipping that offer funds for renovations on top of acquisition costs. Time is an important factor with these projects, so the speed and flexibility of bridge loans becomes a huge advantage for reducing holding costs. Finally, your lender may be able to offer you resources and connections with real estate professionals to assist you in your fix-and-flip project’s success.
Scenario 2: Purchasing a Property Off-Market
Another great way to make use of bridge loans is acquiring properties from off-market sources, such as auctions or foreclosure sales. These can be great places to find deals on properties that in turn become very profitable investments. However, since these properties often go fast, it can be helpful to secure the deal quickly using a bridge loan. Having access to a quick, flexible financing solution gives you an edge over the competition, especially if it comes down to a bidding war.
Scenario 3: Making a Non-Contingent Offer on a Home
Investors love bridge loans for the simple reason that it gives them a flexible financing solution that can be used in a variety of ways. For instance, a bridge loan can be used to acquire properties even when your funds are tied up in another investment. If you are in the process of selling a home but would still like to purchase another property, you’d normally have to make an offer that’s contingent on your sale. Instead, a bridge loan allows you to move forward with the acquisition and repay the loan once you have more permanent funding in place.
Scenario 4: Renovating a Distressed Property You Own
Bridge loans are a good solution for financing renovations on properties you already own, allowing you to improve the property’s value and boost your cash flow. But for certain properties that are in poor condition, a loan from a traditional lender is not always a viable solution as they may deem your investment too risky. Conversely, the lenders that offer bridge loans have more flexible terms, and they will typically already have experience funding real estate renovation projects.
Scenario 5: Expanding Your Rental Portfolio
Investors that are looking to expand their real estate portfolios often turn to bridge loans for funding their acquisitions. Their speed and flexibility are beneficial in securing lucrative deals, and this also lets investors quickly grow their portfolios by financing multiple properties simultaneously. Traditional loans, on the other hand, typically have extensive applications processes and can take weeks or months to be approved.
Bonus Tip: Diversification
By utilizing bridge loans, investors are able to quickly diversify their portfolios by spreading risk across properties located in different areas, or by venturing into other types of real estate investments.
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.