You may be familiar with bridge loans, but how can you use them to your advantage in your next real estate investment? Bridge loans, for those who aren’t familiar, are short-term loans offered by private lenders that can be used for a variety of purposes from purchasing property to covering business expenses. They are most often used to “bridge” a gap in financing.
In real estate, there are many benefits a bridge loan brings to the table over a traditional bank loan. Along with providing investors with additional purchasing power they are also instrumental in securing time sensitive opportunities. Continue reading as we discuss the advantages of bridge loans, as well as how you may be able to use one to your benefit with your next investment.
Quick Access to Funds
The greatest benefit bridge loans provide to investors is quick access to financing when they need it. Loans have a much less stringent approval process which allows them to be approved and funded in far less time than traditional mortgages. This speed can give investors an edge in competitive markets, and gives them the chance to seize lucrative opportunities before others can. It can also be useful in cases where your funds are tied up in other investments, such as when you need time to close on another property deal.
Flexibility in Investments
Another advantage to using bridge loans is that they can be used for a more diverse range of purposes. While a bank loan is typically only used for purchasing properties, a bridge loan can be used to increase leverage in an existing deal and can also be used for financing renovations. In fact, many bridge lenders offer programs specifically designed for flipping, with extra funding provided to cover renovation costs on top of the acquisition of the property.
Preventing Contingency Delays
One of the most useful functions of a bridge loan is that it allows a buyer to place a contingency-free offer on a property. With today’s market favoring sellers, they may not be willing to wait for a home sale in order to complete their closing. A bridge loan can be the competitive edge that puts your offer ahead of the pack. It gives you the funds needed to complete the purchase, and you can then repay the loan once you have secured more permanent financing.
A Shorter Loan Period
Bridge loans differ from mortgage loans because of their short-term nature. While mortgages are typically issued for 15 or 30 year periods, bridge loans range from 6 months to 2 years in duration. This shorter period makes them more suitable for short-term investment scenarios like wholesaling or home flipping. Plus, most lenders have little to no prepayment penalties, so you can choose to repay the loan in full however is most convenient for you.
Property Improvement and Value Adds
Bridge loans are also one of the few ways investors can acquire funds for property improvement projects. Banks are often not willing to lend on these types of properties as they may view them as too risky. With a bridge loan, you can still be approved for financing so long as your deal makes for a good investment. Lenders will be more interested in the property itself than your personal credit history, which means that you’re likely to be approved if the deal makes good financial sense.
Bridge to Better Credit
A bridge loan can be a path to better credit if you may not be able to qualify for other loans due to your personal scores. As we mentioned, your credit is less of a factor when applying for these types of loans. Since they are asset-based, the property being loaned on is typically the deciding factor for approval. If you’re approved, the loan can serve as a way to build your credit and eventually let you diversify your financing options.
Customized Loan Terms
The final benefit we want to cover is how bridge loans can be customized to fit your individual needs. Since these are private loans, they often have much more flexible requirements and terms. For example, many lenders offer interest-only loans, where you are only required to make monthly interest payments and can repay the principal amount at the end of the loan term. By building a relationship with your lender, you have the ability to work with them to create a financing program that is tailored to your specific deal scenario.
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.