Why CRE Investors Are Using Bridge Loans To Fund Their Acquisitions
Investors in commercial real estate have a number of financing options available to them. A savvy investor will look through all available options to secure the loan best suited for the particular need. In some cases, bridge loans are the best choice. These loans are meant to be used as interim funding for securing real estate. It can help when an investor is in a pinch and needs quick access to funds to bridge a gap. There are a number of circumstances when CRE investors will benefit the most from them.
For example, an investor may come across an opportunity to secure a great property at an outstanding price. However, the investor does not currently have access to the funds necessary to make the purchase. Perhaps she has all her money tied up in other ventures at the moment. It can take over a month to get a response from a bank when requesting a traditional loan. A bridge loan can be used in this instance to secure the property that may not always be around.
Another scenario is that you have already secured a property but need to make essential renovations. You cannot start bringing in income from your investment until people or businesses can actually inhabit the property. You may have a small hurdle to get over with paying for these renovations, and bridge loans help fill in that gap. You finish the renovations sooner than expected, and you can begin paying off the loan.
One paramount aspect of these loans is that they tend to come with higher interest rates than traditional loans. Therefore, you definitely want to pay it back sooner rather than later. Fortunately, these loans tend not to come with prepayment penalties, so you may be able to pay it off quickly. These loans are best for when you know you can pay it off within six months to one year. Most investors can pay off these loans once they secure a more permanent form of financing. You can use another loan to pay off the bridge loan, and since the other loan has a lower interest rate and more time for you to pay off, you are on more secure footing once again.
When you need to refinance property, make a big purchase or locate new tenants, bridge loans can be a real lifesaver. Make sure to use them wisely, and they can be a major asset as you seek out new acquisitions.