When Is the Right Time To Use a Bridge Loan For Investors?
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September 3, 2023

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A bridge loan is a powerful source of short-term funding that can unlock opportunities investors may not otherwise be able to access.

As the name suggests, bridge loans are a type of financing that “bridges the gap” during a period when the borrower needs access to immediate cash while they wait for a permanent source of financing.

Let’s take a look at the many ways investors can leverage this type of loan, including the benefits, considerations, and how to qualify with a reputable hard money lender.

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How bridge loans work

Bridge loans—also known as gap financing or swing loans—are most commonly used to cover the gap between the sale of one property and the purchase of another.

When the property sells, you can repay the loan with the profits or apply for another type of loan to cover the payments for the new property.

Bridge loans from hard money lenders rely on the property’s asset value rather than your personal income, which offers real estate investors greater flexibility.

There are multiple borrower scenarios that could benefit from the use of a bridge loan.

When is the right time to use a bridge loan for investors?

While a bridge loan’s general purpose is to cover transition periods, this can be executed differently depending on your unique scenario.

Let’s take a look at some common scenarios of bridge loans for investors.

Time-sensitive opportunities

One of the most common bridge loan scenarios for investors is when a great opportunity pops up on the market but you don’t have the immediate cash to make the deal.

Imagine you find an undervalued property or distressed sale that won’t be on the market long, but you don’t have access to the cash you need.

A bridge loan can provide the quick funds you need to grab the property before you lose the opportunity.

This scenario also might include auction purchases that require immediate funding.

Short-term cash flow needs

Whether you’re trying to take advantage of favorable market conditions, want to make a quick move, or need short-term funds to cover property-related expenses, a bridge loan can cover this period until you can secure a permanent cash source.

Investors also use bridge loans to rapidly expand their real estate portfolio in a hot market.

Financing delays

Maybe you’re in the process of securing a conventional loan or other source of financing, but it’s taking too long and you’re running the risk of losing the opportunity.

While you wait for this financing, you can apply for a fast, flexible bridge loan to cover your immediate needs and repay the loan when you secure the other one.

Discover your full range of options

These examples represent common bridge loan scenarios, but they do not cover the full range of options you may have available to you.

Discuss your specific scenario with the Park Place Finance team to discover how a bridge loan can best meet your needs.

Benefits of bridge loans for investors

For the right borrower, bridge loans from Park Place Finance offer numerous benefits.

These benefits include:

  • Flexible qualification requirements that are based on the property’s value vs. your personal income
  • No income or employment verification needed
  • No need to wait for your current property to sell
  • Term length options
  • Fast, simple closing

Park Place Finance serves investors nationwide and provides a dedicated account executive.

If you’re unsure whether a bridge loan is right for you, take a look at the following considerations.

Considerations for bridge loans

Every type of loan comes with benefits and drawbacks because each borrower’s situation is unique.

Carefully weigh the following considerations to determine whether a bridge loan meets your current goals, needs, and expectations:

  • Due to the short-term nature, investors must present a clear, viable exit strategy to repay the loan within the specified timeframe
  • Bridge loans include additional costs and fees, including closing costs and an appraisal—your lender will make these costs clear to you during the loan process
  • Could fluctuations in the real estate market impact your property value and exit strategy?
  • What are your options if the property doesn’t sell or you encounter unforeseen challenges?

Bridge loans should be used strategically in scenarios where the benefits outweigh the potential risks.

Park Place Finance is a true lending partner that will help you navigate the entire process.

How to qualify for a bridge loan

To qualify for a bridge loan, borrowers must first provide the lender with basic information about the potential purchase and their exit strategy.

While bridge loan requirements vary depending on the individual, here are some common requirements that you may need to qualify:

  • Loan-to-value ratio (LTV) above 70-75%
  • Bank statements and credit score information
  • Property appraisal
  • Annual insurance information for property
  • Detailed plan for purchase and your exit strategy
  • Closing costs and fees
  • Down payment based on your equity and individual scenario

Bridge loans generally are interest-only, with the full amount due at the end of the loan term.

Borrowers frequently pay off the loan following the sale of a current property, or refinance the bridge loan into a long-term loan.

Get started today with Park Place Finance

Real estate investors need a lending partner they can rely on.

Park Place Finance has over $1 billion in loans funded from more than 17 years in business.

We offer both long-term and short-term financing options for investors, including:

  • DSCR loans
  • Fix-and-flip loans
  • Bridge loans
  • Ground-up construction loans

We’ll work with you to find the right loan to reach your financing goals, whether you’re buying or refinancing an investment property.

Begin the process by filling out our simple online application form or calling us at 866-407-1599 to speak to one of our account executives.

We look forward to helping you find the perfect financing solution for your next investment property.

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