Why USE A BRIDGE LOAN?

“So, should we consider using a bridge loan to purchase this one?” I get asked quite often in my client base. Usually, it’s when the proposed project has major underwriting hurdles that would prohibit the property from qualifying for traditional financing.

While most clients’ long-term goal is to put their properties into “traditional” or permanent financing in order to enhance cash flow, the bridge loan is an excellent tool to literally “BRIDGE” the gap before stabilization.

For a property to qualify for permanent financing with the most aggressive interests rates, a property must be stabilized and meet underwriting requirements such as a minimum Net Cashflow and occupancy of 85%.

A BRIDGE LOAN is a great option for properties with the following needs:

• Interior and Exterior Property Upgrades

• Stabilizing Occupancy

• Extensive Deferred Maintenance

The aspects of the Bridge Loan usually include short term debt (usually 1-3 years), higher loan-to-cost, higher interest rates (though typically only slightly higher than the competitive market), and interest-only terms. The interest only terms helps cover the cost of the loan and can offset the higher rates during the bridge period.

Bridge Loans don’t need to be intimidating; and in fact; a majority of my seasoned investor clients will use them often to close on projects that have excellent potential upside. I do, however; always want to encourage my clients to have a business plan in place that would have them starting permanent or “traditional” financing within 12-24 months of the original purchase. These loan structures can truly be great resources for the right project and owner.