When investors need to bridge the gap in financing between selling their current property and purchasing a new one, they often use bridge loans to acquire short-term capital. Did you know bridge loans can leverage an investor in more ways than just providing capital? Here’s how to gain a competitive advantage in the real estate market with bridge loans.
How is a Bridge Loan Used?
A bridge loan is a type of short-term loan that can be used by investors who are selling their current property and are in the process of buying a new one. Market conditions can create lag on the sale of your home, which then extends the time it takes to acquire capital for the purchase of a new property. A bridge loans helps to avoid this by leveraging yourself financially in the real estate market and keep your strategy moving in a forward direction.
Competitive Advantages of Using a Bridge Loan
It’s not uncommon for real estate investors to leverage themselves in the market with short-term bridge loans. Here are some ways you can add a competitive advantage to your strategy with a bridge loan.
The fast approval rates of a bridge loan offer a competitive advantage to an investor who’s looking for financing at the soonest availability. If you have your eyes on a property, don’t let a slow approval process halt your investment opportunities. A bridge loan gives you the option of fast approval so you can make an offer on a property as soon as possible.
Use as a Down Payment
While in the process of selling a property, it can be hard to acquire the capital needed for a down payment on a new property. A bridge loan “bridges the gap” in your available capital between selling and buying, meaning you can use the loan as a down payment on your next property. When your cash is tied up in another property, compiling a large down payment may require having to offload other assets. This is where a bridge loan comes in, you can give yourself a financial competitive advantage without selling off other assets.
Many real estate investors prefer to use a bridge loan to give themselves a competitive advantage in the market due to the fact short-term lenders are more lenient with repayment options. Some lenders offer the option to pay the loan off in full at the end of the term, which can be handy for an investor who wants to aggressively expand their portfolio. The extra capital you’re saving every month can be put towards other expenditures during your loan’s term.
Preferred by Sellers
In a seller’s market, a bridge loan is preferred due to its quick approval rates. For a seller with multiple buyers, they often pick the bid that offers them the fastest closing time so they can quickly offload their property. A bridge loan can be approved in as little as one day, which is very lucrative to a seller looking for the fastest solution. Other types of traditional loans can take months for approval; in situations where bridge loans are applicable the competitive advantage they offer can make or break a deal.
Since lenders who provide bridge loans are generally not associated with federal institutions, they are easier to work with regarding the flexibility of your loan. There are no concrete specifications for a bridge loan, which gives the lender more flexibility when deciding on your approval. It’s common for lenders to look at your investment history and debt-to-income ratio, but many short-term lenders have the ability to be flexible with approval rates.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.