Why Do Real Estate Investors Utilize Bridge Loans?
Are you interested in purchasing a new property, but have equity tied up in an existing one? This is a situation faced by many real estate investors. Placing a property sale contingency in your offer letter on a new property can increase your risk of rejection by a traditional lender.
To help close the gap in funding without the need for offer contingencies, many real estate investors turn toward bridge loans. In this article, we’ll cover the fundamentals of a bridge loan, including the specific advantages real estate investors can leverage.
What is a Bridge Loan?
A bridge loan is a form of short-term financing designed to fill the gap in funding when purchasing a new property. Due to the quick access to funds and short-term nature, bridge loans typically have higher interest rates compared to traditional loans. It’s not uncommon for your bridge loan to have a rate of around 10%.
Real estate investors can use bridge loans to pull out equity in their existing properties. A bridge loan lender will provide the funding for your new property based on the equity in your existing one, and once the existing property sells, you pay back the bridge loan in full.
The specifications of the loan and the qualification criteria will vary from lender to lender. However, bridge loan lenders typically look at the loan-to-value ratio, property value, and location.
Why Do Real Estate Investors Utilize Bridge Loans?
A real estate investor might take out a bridge loan to quickly secure financing during a transitional period, such as when purchasing a new property before selling their current one. This short-term financing option provides immediate capital, to act fast on time-sensitive opportunities. Bridge loans also help real estate investors manage cash flow, cover unexpected costs, or complete renovations to increase the value of their properties before securing long-term financing.
Additionally, bridge loans are a great resource for real estate investors looking to unlock the equity in their current properties. By leveraging the value of an existing property, real estate investors can obtain the necessary funds to expand their portfolio or execute improvements without waiting the lengthy qualification process of a traditional lender. This is especially advantageous in competitive markets where speed is crucial. The ability to access quick financing through a bridge loan allows real estate investors to remain agile and responsive to market opportunities.
Finding a Bridge Loan Lender
It’s important to find the right bridge loan lender to fit your unique needs. At Wilshire Quinn, we have over 12 years of experience navigating and funding various loan requests and specific circumstances.
To optimize your repayment period, interest rates, and loan amount, contact one of our team members at Wilshire Quinn Capital today to get started.