July 6, 2016

Making Sense of Bridge Loans

With all the loan options available to consumers, what is it about bridge loans that can make them such a great choice for those looking to buy in commercial real estate? Here you’ll find an overview of how these loans work and what they’re typically used for.

How Bridge Loans Work

Bridge loans are primarily used by buyers that are looking for a short term loan option for a property on which that they intend to make a profit in a brief amount of time. It’s true that some commercial properties are great investment opportunities but are highly time-sensitive; these kinds of loans are designed for that type of scenario, as they are made to “bridge the gap” between you and the property in question.

For example, perhaps you are looking at a property that has a lot of potential but is going for a more meager sum of money. It’s rough, but you know that this particular property can go for double what it’s being sold for if someone did some particular repairs and put finishing touches in some key spots on the property. Say it could theoretically be re-sold in a matter of nine months, and you as the buyer would make a great profit.

Power And Flexibility

This is where bridge loans come in. These loans are only designed to last up to a year or so, making it the ideal situation for the buyer looking to make an immediate profit, knowing just what to do with the property at hand. In that short time, the buyer may just be waiting to get refinanced after they’ve done the renovations on the property, or waiting for the right tenants to come along and occupy some of the space. Maybe they are even looking to re-sell the property after they’ve done what’s needed. For this reason, these loans are able to be extended beyond the usual time allowance. It’s worth noting, though, that such loans can sometimes come with higher interest rates, due to the nature of having this option available for buyers short on time. The loans are paid back when the buyer has re-financed the property, sold it or found enough tenants to pay off the loan.

All in all, these loans are designed to provide a way (or a bridge, if you will) for buyers to take advantage of great offers that would not normally have been available to them on short notice. Bridge loans offer opportunity and efficiency, with minimum wait time, allowing you to maximize your profit in the end.