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Bridge Loans: A Private Lending Solution for Investors

Why Investors Are Choosing Bridge Loans

In the world of private lending, real estate investors are building strong portfolios by utilizing asset-based loans, and one of the most common types of asset-based loans are bridge loans.

Bridge loans are a great solution for investors of all experience levels who are looking to grow their real estate investment portfolio – especially if that portfolio is focused on single-family residential, short-term rental properties, and multifamily rentals.

What is a Bridge Loan?

Bridge loans for real estate investors are a type of loan that offers short-term financing when more conventional financing sources may not be available because of temporary illiquidity. Many conventional loans require qualifications that can restrict investors from getting access to the funds they need.

Bridge loans are an alternative to traditional private lending and can be used for a variety of reasons including purchasing an investment property under a tight timeline, renovating a fix and flip property or selling the property over a shorter time period (as in the B.R.R.R. method), or purchasing properties in foreclosure.

In this situation, a bridge loan is the best option for real estate investors because they’ll get the urgent funding needed for repairs and renovations, such when rehabbing a fix and flip investment – leading to higher earned rental income and the ability to pay off the loan quickly.

Real estate investors also use bridge loans when finding a new tenant, stabilizing the cash flow of a rental property, or resolving a short-term issue affecting the property. Bridge loans have fewer guidelines, restrictions, and underwriting allowing investors to have faster access to financing.

How Are Bridge Loans Used?

Here are a few examples of how investors might use a bridge loan:

• Purchasing a new fix and flip investment property to rehab and sell it quickly and for a higher price
• Buying a property while you wait for the proceeds from selling another property
• Providing time while you acquire permits and plans to modify the property in a way that will improve your investment
• Giving yourself more time to sell a renovated home and recoup your investment
• Giving yourself more time to complete rehab and renovations or stabilize rental history before getting long-term financing for your investment property

Why Investors Are Choosing Bridge Loans

There are pros and cons of bridge loans, but in this rate environment, bridge loans are often a better option than traditional rental property loans.

They Offer Fixed Interest Rates

If a qualified borrower comes to Lima One looking for a bridge loan, we offer a fixed interest rate throughout the term of the loan (typically between one and two years, with an extension available). If that interest rate goes down, the borrower has the option to pay off the bridge loan early (with no pre-payment penalty) and get long-term take-out financing at a more favorable interest rate.  If that same borrower chose a traditional rental property loan, they would face a pre-payment penalty in order to secure that lower interest rate.

They Provide a Quick Close

Another advantage to bridge loans is the speedy closing process. The guidelines on a bridge loan are simpler because private lenders like Lima One require less documentation. With simplified underwriting based on the property’s value, investors can close a bridge loan quickly.

The simplified process and quick close are key for real estate investors when it comes to procuring a great investment property before someone else does. For example, a borrower purchasing property in bankruptcy or foreclosure may need to close quickly or purchase with cash and then quickly close a bridge loan to replenish reserves for the next short-term rental, multifamily, or fix and flip investment opportunity.

They’re Ideal for Value-Add and Fix & Flip Investments

Bridge loans are also an attractive financing strategy for value-add investments. Today’s market is actually ideal for many investors to create value using bridge loan structures. When home prices and interest rates rise, it becomes more difficult for investors to obtain high leverage loans.

A bridge loan can be an economical solution for that investor because it offers interest-only financing at a fixed-rate. When real estate investors choose a bridge plus loan with Lima One, they can get up to 80% LTV, depending on investment strategy. This interest only loan allows the investor to stay liquid while they prepare the property for a long-term strategy, whether it’s as a long-term rental property, a fix and flip investment, or a short-term rental property.

Bridge Plus Loan - Dallas, TX

Fix and Flip Bridge Loan - Honolulu, HI

Multifamily Bridge Loan - Winston-Salem, NC

Your Go-To Lender for Bridge Financing

If you’re a real estate investor wondering how to grow your investment portfolio, a bridge loan is an important tool in your toolbox. Private lenders like Lima One offer bridge loans in California, Florida, Texas and 46 other states to help investors build and diversify their real estate portfolios.

With a bridge loan,  real estate investors have the option to finance property they plan to rehab with construction bridge loans that can be converted into a long-term fix and hold loan later.

Lima One also offers multifamily bridge loans for stabilizing properties or value-add multifamily investment project for stabilizing properties or value-add projects.

If you’re looking for a quick, streamlined lending process for your bridge loan, Lima One is the lender you can count on. With less underwriting and documentation, we can close your loan quickly.

Contact us today to discuss your next deal, or if you have a deal in hand, accelerate the process by applying now.