Bridge loans are short-term loans that can fill opportunity gaps left behind by traditional loans. Traditional loans can take months to finalize. A lot can happen in a few months and without those funds, you might leave a number of great real estate investment opportunities on the table.
The flexibility of a bridge loan provides funds quickly and is meant for shorter time frames than those of a traditional loan. Let’s explore some of the advantages of bridge loans that every real estate investor should consider.
Let’s say you are in the process of selling your existing investment property. During this process, a new investment opportunity arises that is time sensitive. This would be an ideal opportunity to bridge the gap in liquidity while you wait for the sale of your existing property.
This is a case of bad timing intersecting funds being tied up in other investments. You need a way to fill the gap between points A and B as fast as possible. But the only way to do it is with cash you don’t yet have. A bridge loan provides a clear path from A to B by replenishing your cash and allowing you to take advantage of opportunities that you would have otherwise had to skip. With a fast loan approval, the seller won’t even know you initially didn’t have finances to close the deal.
Lack of funds doesn’t mean you have to let great opportunities disappear into the starry night. Bridge loans are a fast way to secure funding for that next deal. With flexible loan structures and no prepayment penalty, a bridge loan can fill your funding gap on your terms.
Unlike traditional loans, bridge loans provide a lot of flexibility and can be personalized to fit your real estate investment needs. Let’s look at each of these in more detail.
●Competitive Rates: Bridge loan rates are generally higher than rates on traditional loans but lower than other lending options such as hard money loans.
●Variable and Fixed Rate Options: For shorter investment horizons coupled with stable interest rates, a variable option is the better option. However, if you have a longer investment horizon with a higher forecast for interest rates, a fixed rate option is a safer bet.
●Alignment With Your Exit Strategy: Being clear on how you plan to pay back the bridge loan is critical to getting approved. Assuming a solid exit strategy, you will likely find that bridge loan lenders are accommodating. The most common exit strategies for bridge loans include:
1. Refinance with a conventional mortgage
2. Sale of the asset
3. Income from other ventures
●Payoff Your Loan at any Time: Payoff or pay down your loan at any time with no pre-payment penalty fees.
●Interest-Only Payments: Bridge loan payments that are interest-only often have smaller monthly payments with the principal amount being paid at maturity.
●Asset Based Lending: Bridge lenders interests are secured by the collateral instead of by the borrower’s personal income and credit score.
●Good Option for Foreign Investors: Bridge loans are ideal for foreign investors who do not have a way to verify their income and/or do not have sufficient credit history to apply at a U.S. bank
“It’s more applicable and more attractive to the buyer that doesn’t have banking relationships here and needs a quick solution for the next two or three years”
Said Edgardo Defortuna, founder of Vaster Capital, in an interview with the therealdeal.com.
Additionally, you can find bridge loans with terms of 1- 3 years, providing for a wide range of financing to suit various scenarios. Before jumping into a loan, consider asking if loan extensions are an option. Extensions can provide the flexibility needed when more time is required to pay off the loan.
Vaster Capital is a leading bridge lender specializing in real estate investment properties. We offer custom structured loans for residential, commercial, and land assets. Get a loan approval in less than 24 hours and close in as little as 7 business days. Get connected with a Vaster loan specialist today for more information.