For those who are new to investing in real estate, a common question is, what is bridge financing?
A better question is, what is bridge financing and how does it benefit commercial real estate investors?
Bridge financing is short-term financing, sometimes referred to as private money or hard money. Bridge loans are typically made by private individuals and not banks, so the interest rates on bridge loans are higher than bank loans.
Many of the commercial real estate investors who were able to purchase distressed commercial properties in recent years made out very well. In order to act on multiple opportunities at the same time, many real estate investors have turned to bridge financing.
Bridge financing benefits investors in 3 important ways:
- Bridge financing allows investors to make their money go further. For example, if two properties come together at the same time, an investor can purchase both properties using a bridge loan on each purchase.
- Bridge financing removes partners or family members from a deal. Investing with family members or business partners can be tricky. Bridge loans can remove other partners from the equation, allowing an investor more freedom and flexibility with a newly acquired asset.
- Bridge loans fund faster than bank loans. If an opportunity is good, it won’t last long. Bridge loans have less requirements than bank loans and thus close quicker. Bridge financing allows investors can grab a fleeting opportunity before another investor snatches it up.
If you are not familiar with how bridge loans work, read more on our blog and learn how these loans may benefit you or your clients.