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If you are a real estate investor, or someone looking to start investing in real estate, you should be aware of bridge loans. Bridge loans are an incredibly useful tool that help give investors access to more opportunities in the real estate market. They can be used for a variety of purposes from securing time-sensitive deals to providing funds for renovation projects. If you aren’t familiar with bridge loans already, you could be missing out on a key tool that can help you find success in real estate investing. Continue reading as we cover everything you need to know about bridge loans, and how they allow investors to unlock more opportunities for their real estate portfolios.
Understanding Bridge Loans
Before you can begin utilizing bridge loans for your investments, you should be familiar with what exactly they do. Bridge loans are a form of short-term financing provided by private lenders that operate in the real estate space. They’re called bridge loans because they can help “bridge” the gap between a property acquisition and securing more permanent funding for it. Bridge loans aren’t typically offered by traditional lenders, like banks or credit unions, and they don’t share the same 15 or 30-year term that mortgages from these lenders have. Most bridge loans are issued for periods ranging from 6 to 24 months since they are intended for short-term deal scenarios. It’s important to note that due to their shorter nature, bridge loans often have higher interest rates than standard mortgage loans.
Identifying Opportunities
There are a range of opportunities that become available to you when using a bridge loan for financing. Many investors utilize bridge loans when their funds are tied up in a project, such as during the process of selling a home. They can take out a bridge loan to secure a lucrative opportunity, and then repay the loan once they have finalized the sale. Another common use case for bridge loans is funding fix and flip investments. Most bank loans don’t provide funds to help cover renovations, but many bridge lenders offer programs specifically designed for flipping that will cover these costs. Bridge loans can also be useful in scenarios where you or your property don’t qualify for bank funding, as they often have less stringent requirements than traditional loans.
Benefits of Using Bridge Loans
Investors use bridge loans to fund their deals because of the many benefits they can provide. First and foremost is flexibility in loan terms and repayments. Bridge loans can be tailored to your specific needs with regard to loan length and amount, and are easier to qualify for on riskier projects like fix and flips. They also provide investors with fast funding when they need it. Traditional loans can take weeks or even months before funds are delivered, while bridge loans can deliver funds in as little as ten days after applying. The benefits that bridge loans provide allow investors to seize more opportunities in the market and make higher returns on investments that they otherwise wouldn’t have been involved in.
Mitigating Risks
You should also be well aware of the potential downsides of using a bridge loan, as well as what you can do to help mitigate these risks. We already mentioned that these loans often come with higher interest rates than standard mortgages, so you will need to carefully factor that into your estimates when determining the profitability of a deal. These loans also have shorter terms, which means you should be ready to repay the loan or seek long-term financing with your project before the end of the loan period. Be sure to conduct due diligence with your investment to ensure that it’s financially viable. If you aren’t confident in your ability to repay the loan (or secure more permanent financing) then you’re better off avoiding this type of financing.
Applying for Bridge Loans
Applying for a bridge loan isn’t too different than applying for a 30-year mortgage, though you will be working with a private lender as opposed to a bank or credit union. You’ll need to provide them with detailed information on the property and some basic information on your personal finances when you’re applying. The lender may also run a credit check, but this is typically not meant to disqualify you from the loan but instead to determine your loan’s interest rate and leverage. The lender you decide to go with will also be important; be sure to look into their reputation as well as their track record of providing loans. Don’t be afraid to shop around and compare loan offers so you can find the one that best fits your investment needs.
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.