A bridge loan is a great tool to have at your disposal if you are a real estate investor. These are short-term loans, generally issued for 6 to 12 months, which give investors the ability to “bridge the gap” between an investment opportunity and securing more permanent funding. While they usually have a higher interest rate than a traditional loan due to their short-term nature, they also allow for flexibility and quick funding. There is a large variety of reasons investors will seek out a bridge loan. In this post, we cover some of these reasons and why you should consider a bridge loan for your next real estate investment.
When you need funding fast
As mentioned, the primary use for a bridge loan is when you need funding quickly. These loans provide some of the fastest ways to obtain capital, with a shorter turnaround time than any other real estate loan. Loans can close in as little as 2-4 weeks provided you work closely with your chosen lender.
When you need time to sell another property
The other main use case for a bridge loan is when you are ready to make a real estate purchase, but still need time to sell or close on an existing property. A bridge loan can provide you with funding immediately, allowing you to jump on a time sensitive deal and pay the loan back when you have the funds available. They are a good solution for when a buyer is not willing to accept a contingent offer on a property.
When you may not qualify for a traditional loan
Another time to consider a bridge loan is when you may not qualify for a loan from a traditional lender or bank. These loans are secured by property, so your creditworthiness is less of a factor for loan approval. Lenders will be more concerned with the property you are looking to acquire and whether it makes a good investment.
When you want to fix & flip a property
The short-term nature of bridge loans makes them great for investing in fixer upper homes. You can borrow the funds required to purchase and rehab a property, then pay the loan back once you have flipped it. Some lenders may even use ARV (After-Repair Value) in their calculations when determining if a loan will be approved.
When you want to stabilize the cash flow of a property
If you are the owner of an underperforming property, a bridge loan may be perfect for you. Let’s say you are the owner of a multifamily home that is in need of major updates. Or maybe you own a property that needs serious repairs from things like structural damage or environmental issues. A bridge loan can give you funds to resolve these issues and establish a much better cash flow from your investment.
Because they allow for flexibility
One more reason to consider bridge loans is their range of flexibility. While most loans will be issued for 6 or 12 months, they can actually range anywhere from 1 month to 2 years. Many lenders have both fixed and variable interest rate options, as well as interest-only loans where you make interest payments month to month, then pay the principal amount at the end of the loan term. Speak to your chosen lender to find out all the options they offer regarding bridge loans.
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.