Why CRE Investors Use Bridge Loans for Property Acquisitions
If you are a person who often invests in commercial real estate, sometimes it may be difficult to acquire new property. Oftentimes it is not due to a lack of money but more so because money is tied up in property that is already owned. If you are looking to purchase new property but are still waiting for the sale of a current property, you might be able to benefit from bridge loans. Just as the name suggests, these loans are designed to bridge the gap between finances. Those investing in commercial real estate may also find this loan useful when they are waiting on properties to be leased out. Essentially, this is an ideal solution for those that anticipate the money in the near future but are not able to utilize it for any number of reasons.
These kinds of loans are common in commercial real estate due to their easy application to these situations. With this loan, lenders have a higher risk involved and, therefore, you may see a higher interest rate. However, you won’t be forced to wait to repay it as there is no prepayment penalty. Because these loans are only intended to cover costs until sales are finalized or revenue is increased, it is expected that the borrower would be able to repay the loan rather quickly. In fact, the expected life of bridge loans is usually around six months to a year, although it can be extended if need be. The reason for the shorter term of the loan is to ensure that they will be repaid quickly and are being used for their temporary purposes. Additionally, borrowers usually do not have to wait incredibly long to receive the financing. Because these loans are intended to take care of matters that are time sensitive, borrowers do not have to wait a long period of time before being provided the loan.
This kind of short term loan is perfect for commercial real estate investors looking to bridge the gap between finances. Bridge loans are a great way to secure assets when you may not have the working capital necessary to make the business transactions that you require. It can be the perfect way to transition smoother into a new property acquisition. Whether you are awaiting a sale on a property to be finalized, finishing up improvements or looking for tenants to lease to, these kinds of loans may provide the kind of financial coverage you need to acquire more profitable commercial properties.