Bridge Loans for Real Estate Investors

Bridge loans are a form of short-term financing used by real estate investors, business owners, and homeowners to “bridge the gap” between selling an existing property and buying a new property.

Bridge lenders provide borrowers with quick access to financing, giving them the ability to capitalize on attractive deals that would otherwise be lost.

Lenders intentionally keep bridge loan durations short, typically 3 to 12 months, to reduce their market volatility exposure, while also motivating the borrower to execute on their repayment strategy.

Since funding can take less than a week, these loans are ideal for time-sensitive deals unable to wait for lengthy bank approval.

How Bridge Loans Work

Bridge loans are the perfect financial tool for property owners transitioning from one property to another.

A borrower can leverage an existing property to complete the purchase or down payment of a new property while waiting for their current property to sell.

Once the new property has been purchased and the old property sold, the borrower uses the proceeds to repay the bridge lender.

Bridge loans for investment properties function around speed, collateral, and short-term lending periods.

Essential Features

Asset-based Loans: Funded by bridge loan lenders, borrowers are typically required to have at least 25% equity in the collateral property, depending on the lender.
Application & Funding: Bridge loan applications require minimal paperwork relative to bank loans, and the entire funding process usually takes 5 to 7 days.
Shorter-term: Bridge lending terms range from 3 to 12 months. However, due to the high interest rates, it’s inadvisable to hold a bridge loan for the long-term.
Exit Strategy: Repayment typically occurs once the property is sold or bank financing is obtained.

Most Common Bridge Loan Uses

Bridge loans are most commonly used by homeowners and real estate investors, but for different purposes.

Homeowners primarily use bridge loans to purchase a new home before selling their existing one. The bridge loan provides short-term financing for the down payment or purchase. It is repaid once the old home sells.

Real estate investors use bridge loans for acquisitions, renovations, or unexpected opportunities, especially when speed matters and traditional financing can’t perform quickly enough.

However, bridge loans are not limited to homeowners and real estate investors.

Small and large businesses, along with entrepreneurs, find use in bridge loans’ fast funding capabilities.

Business Bridge Loan Uses

Operating Costs: Bridge loans can fund day-to-day expenses like payroll, rent, and inventory
Expansion Growth: Leasing or purchasing additional locations, buying an existing business, adding machinery, implementing innovative technology, or hiring additional manpower.

Pros and Cons of Bridge Loans

Pros

Speed

Receive funding in days, not weeks.

Flexibility

Loans are customized for your needs.

Less Red Tape

Minimal paperwork required.

Financial Profile

Credit score, income verification, and employment history are not essential approval factors.

All-cash Offers

Make stronger offers without financing contingencies.

Scale your Business

Ability to grow your property portfolio quickly.

Easy Exit Strategy

Selling the property or transitioning into a bank loan.

Cons

High Interest Rates

8-15%, therefore, should only be used in the short-term

Limited Funding Duration

Be ready to pay back the loan in 3 to 12 months

Collateral Risk

Defaulting on your debt obligations could result in you losing the property to foreclosure

Final Thoughts

Bridge loans create unique temporary financing opportunities for real estate investors, businesses, and homeowners, giving them a leg up during negotiations.

Borrowers with enough equity and a sound exit strategy have a high likelihood of qualifying for a bridge loan, which can unlock opportunities otherwise unavailable.

Under these circumstances, obtaining a bridge loan turns into a powerful tool rather than a risky loan.

Becoming more knowledgeable regarding the key features of bridge loans can help borrowers make better financial decisions and move quickly on hot-market opportunities.

Bridge Loan FAQs

What is a bridge loan in real estate?

A bridge loan in real estate is a temporary financing solution that allows a real estate investor to borrow money against an existing property.

How long do bridge loans usually last?

Bridge loans usually last 3 to 24 months.

Are bridge loans only for investors?

No, bridge loans are not just for investors. Homeowners as well as business owners will also use them.

Can you refinance a bridge loan into a long-term loan?

Yes, refinancing is one of the most common bridge loan exit strategies, along with selling the property.

Are bridge loans risky?

Bridge loan risk varies depending on a borrower’s financial situation. They can be risky if the borrower doesn’t have enough equity or a clear exit strategy. But with both of those factors in place, the risk substantially diminishes.

Handpicked Resources

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Bridge Loans Guide Bridge Loans
Bridge Loans for Business Bridge Loans
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Commercial Bridge Loans Bridge Loans
How Long Does It Take?

About the Author

Russell Barneson
Hard Money Lending Expert

Russell is a seasoned real estate investor, writer, and hard money lending expert, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.

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Bridge Loans for Real Estate Investors