A bridge loan is a common term in the world of real estate investing. A bridge loan is simply a means to an end. It is a way to bridge some gaps between where you are and where you want to be. Think of it as a short-term solution.
A bridge loan is typically a short-term loan that can be funded quickly. Maybe you have financing lined up on a new rental property but need to close before your lender is ready or maybe a property needs some repairs made before it qualifies for the permanent loan. There are many reasons a real estate investor would want to use a bridge loan to finance their deal. It is just one more tool helping you make money in your real estate investor tool belt.
When A 45 Day Bridge Loan Makes Sense
The 45 Day Bridge Loan is a great tool for any real estate wholesaler or real estate investor in Colorado, Minnesota, or Wisconsin. It is a cheaper alternative to hard money to bridge a gap to your end goal. Some reasons you might consider a 45 Day Bridge Loan include:
When Encountering Deed Restrictions
Did you know a seller of a property can restrict you from reselling a house within a certain period? When a seller restricts you from buying their house and reselling it for a profit, we call this a deed restriction. A typical deed restriction is 30 days, meaning you cannot close with your new buyer and make your profit for 30 days after you purchase the property. This can cause major issues for wholesalers that want to flip their investments as quickly as possible. If you don’t have the cash or don’t want to tie up your cash for 30 days, you will need a bridge loan to hold the property while you wait out your deed restriction period. The 45 Day Bridge loan is the perfect fit when wholesaling properties with a deed restriction.
Flipping A Short Sale
On May 30, 2006, the Colorado Foreclosure Protection Act was signed into law. Included in the Colorado Foreclosure Protection Act is a requirement of full disclosure to the lender if you are reselling the property within 14 days. This has a great impact on wholesalers. What lender would accept a short sale knowing you are reselling the property for more? This effectively kills wholesalers who negotiate a short sale and want to close with their buyer immediately after buying the property from the seller (the double close). Now wholesalers of short sales in Colorado need to wait 14 days before they can close with their buyers and make their money.
Awaiting Alternative Finance
Let’s face it, some lenders are slow. What if you are in serious negotiations with a seller of a great deal and need to offer a quick close to get the deal done? Or what if you had your money lined up and the lender changes their mind as you get closer to closing? A bridge loan helps you close on a transaction while you continue to work with your permanent lender to check all their boxes and get you to the closing table.
Quick Repairs Before Refinance
Does the property you want to buy need repairs? A common strategy among successful real estate investors is to buy houses that need repairs so they can add value. This is where your profit as a real estate investor can come from. The problem is sometimes a property needs to be repaired before a bank will finance it. Appraisers are required to mention in their report if a house is habitable or not. A house that is not habitable is generally not financeable with traditional loans. It could be something as simple as not having a conforming bedroom or a way to cook food. In cases like these, there is a tremendous opportunity. A real estate investor can buy the property with a 45 Day Bridge Loan, do the quick repairs, and then get the appraisal done. This way the value is higher, and the house is habitable making it much easier to qualify for the new loan.
There are many times real estate wholesalers need a little more time to get the deal with their buyers done. It could be the buyer is waiting on another deal to close to free up cash, it could be a deed restriction, or it could be as simple as just needing more time to market the house or negotiate the deal. If there is ever a time as a real estate wholesaler you find yourself needing time, you will want to look at a bridge loan to help.
How We Structure Our Bridge Loans
The loan structure on the 45 Day Bridge Loan is similar to our more typical Rehab Loan but it saves you money! Here are the highlights of how it is structured:
- A 45-day term with an optional extension. You can use this loan for any of your short term needs for one lower price. Need more than 45 days? No problem, there is a built-in extension.
- This lower 1.5 percent origination fee saves you money.
- Although this is a bridge loan, we are happy to loan the money for any needed repairs to the property. You can borrow up to 70% of the after repair value (ARV) including money to make your repairs!
- Wholesaling the property and not wanting to make repairs? No problem, we will loan you 70% of the current value.
- Need to close fast? Perfect! With our in-house underwriting, you can speak to the decision-maker and sail through those tight timelines.
- All points and fees can be rolled into the loan making this a great option for investors on a budget.
Because this is a short-term bridge loan you will never have to worry about making payments.
Automatic Extensions Available
Plans changed and you need more time? Great! We have you covered. The 45 day Bridge Loan comes with an automatic extension. All extension fees will be rolled into the loan so there is no out of pocket expense to extend. The extension term gives you an additional 7.5 months, turning this into a 9-month loan. Plenty of time to accomplish your goals.
As you can see this is a carefully designed loan with the real estate investor in mind. It is the perfect weapon in your arsenal to accomplish those short term real estate investing goals.