Why You Should Use Bridge Loans for Real Estate Investing
If you’re in the commercial real estate business, you know how many things have to go just right to make your new rental property a success. The perfect location, the perfect building, plenty of tenants that will pay on time: the list goes on. You should also have the proper financing in place for when that perfect building comes along. Or do you? Bridge loans can be quite the lifesaver in this line of work, especially when everything doesn’t work out just perfectly. You may have found the perfect location, but the building on it needs a lot of work before you can rent it out. Or maybe a great building on a beautiful location has become available, but you don’t have the financing set up just yet.
Bridge loans are usually meant to be short-term financing solutions so that you can get your hands on the keys to a great building or get the necessary renovations done so that your tenants can start unpacking (and start paying). This is possible by using the real estate as collateral, which motivates you and the lender to make sure the building is successful. For example, if a lender gives you the money to renovate a huge apartment building that you got at a low price, the more you improve it, the more value it may gain. When you’re ready to pay back the loan, you both likely made big profits.
What is the fine print? There is usually significant risk involved on the lender’s part, which means interest rates are likely going to be higher than commercial loans. These loans are usually six months to a year. Some lenders may allow you to go longer, but they also want their money back. It sounds scary, but if you do your homework and have a solid plan together to pay the loan back, it can be very doable. If you’re renovating, get some estimates on time and prices. Start advertising to your tenants as quickly as you can. Once people start moving in, rental checks can start coming in, too. You can have that loan paid off before you know it.
Bridge loans can be a great way to get the money you need when you need it most. It helps you to get the most out of your investment so that you can turn the profits that you deserve. It can help you fulfill that vision in your head of a beautiful property where your tenants will be happy enough to stay there for a very long time.