Bridge loans are a great tool that investors can use to leverage themselves better in the real estate market. A bridge loan is a form of private financing that is secured by owned property, and based on a shorter time period of 12-24 months. They generally have higher interest rates due to their short-term nature, but they are very useful to investors for acquiring property. There are several times when a bridge loan can be a perfect solution, like when you need to place an offer on a property with no contingencies. Knowing when to use a bridge loan properly can help you with your next lucrative deal. Continue reading to learn more about using bridge loans for investment financing.
For home flipping
One of the most common uses for a bridge loan is to finance a fix and flip property. It can be difficult to acquire a short-term loan for home flipping by a traditional financial institution since these types of loans are viewed as risky by them. Most of these lenders won’t even offer a short-term loan for real estate. For home flipping, you are much more likely to be approved for a loan by a private money lender. They will likely have short-term products, like bridge loans, which are perfect for flipping since they cover both acquisition and rehab costs.
To acquire time-sensitive deals
Bridge loans are known for their quick turnaround time when compared to traditional bank loans. They have a less lengthy qualification process, and you can have your deal funded in a little as two weeks. That makes bridge loans perfect for acquiring properties when your funds are tied up in other investments. For example, let’s say you’ve found a lucrative property that you would make for a great home flip, but you’re also in the process of selling a different property. A bridge loan allows you to jump on the deal before it’s too late, and then pay the loan back once you have the funds available.
When you may not qualify for a bank loan
Another time that a bridge loan can be useful is when either you or the property may not qualify for financing from a traditional lender like a bank. If you have less than stellar credit, you may have trouble being approved for a real estate loan from a bank. With a bridge loan, your credit is a less of a factor in the approval process. Lenders will be more interested in the property itself, and whether or not the deal makes financial sense.
There are also times when a property will be difficult to finance with a traditional loan. Let’s say you’re interested in purchasing a large multifamily home, which is in need of renovations, with the intention of raising the cash flow on the property. A traditional lender may deem your investment too risky, and they won’t be willing to finance your investment.
As you spend more time in the real estate world and become an experienced investor, you will come across occasions when having access to quick, reliable funding can be very handy. Bridge loans can be the tool that allow you to be involved in profitable deals when you otherwise wouldn’t have been able to. Of course, there are times when a bridge loan will not be the best solution for funding a deal. If you aren’t confident you’ll be able to secure permanent funding before the end of the loan period, it’s best to stay away from this type of financing. Bridge loans are intended to “bridge the gap” between a great investment, and the time it takes to ensure you are able to finance it. Ideally, you should be able to repay the loan with the funds from the sale of real estate property.
Do you have a real estate project you’d 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 acquire a Bridge Loan on a property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.