When you are in the process of buying and selling homes, there may sometimes be a case where you need funding for a purchase before that funding comes from a different sale. This can happen a lot in businesses that involve flipping homes. For moments like these, bridge loans can help investors and flippers jump on the next great deal without being concerned that another property of theirs hasn’t sold. However, there are a few things that you need to keep in mind when it comes to these loans.
The first step is to understand what exactly a bridge loan is. It is meant to be a temporary and short term solution to help get the funds together to transition from buying a new home to selling the one they were just in. You will need to have collateral to offer, which is usually the home that you are planning to sell. The loan should be paid off within 6 to 12 months. However, the interest rate is usually higher than what is on the rest of the market. If you sell your current home before the loan has been fully paid off, it is possible to use the proceeds from the sale to pay off the rest of your loan without getting prepayment penalties. This is how some people defeat the slightly higher interest rates.
There are six different kinds of bridge loans that you should familiarize yourself with. The first type is a personal property loan, when you are selling your current home and moving into another one. The next is a hospitality loan, where you are looking for stable cash flow while you are working on finding another funding option. A retail bridge loan is when you are trying to snap up a retail space when it is being offered for a good deal. Industrial loans are used for renovating or upgrading a building, office loans are when transitioning, moving or upgrading an office space and finally, multifamily loans are used when you are renovating units of apartments that you own so that you can make it better for the tenants.
There are a few different reasons to look into this type of financing. If you are an investor, you want to make sure that you jump on the deals before they go away. If you are renovating your business, you are obviously losing money the days that you aren’t operating. For this reason, looking into bridge loans for funding is a smart idea.