When a real estate investor comes across a particularly good deal, they may not always have the time to arrange proper, long-term financing to satisfy the seller’s needs.  In these situations, seasoned investors with good credit and sufficient business experience will often turn to bridge loans to secure the deal until better financing can be arranged.

The Structure

Bridge loans typically have shorter terms, often require a higher rate of return and are usually accompanied by a slew of associated fees. In return, they offer a quick and ready supply of funds for investors who need to consummate a deal as soon as possible.

The Uses

While there is really no limit on when a bridge loan can be used, as long as the borrower is comfortable with the terms, most bridge loans are typically sought when permit approvals hold up a project, when another sale is pending and the funds are needed to consummate the final deal or, most typically, in a “fire sale” situation when a seller must close a deal within a specified period of time.

The Benefits

The two most important benefits of a bridge loan are its ability to loan money without a mass of paperwork and in a timely manner. Whether you realize it or not, these are two of the most important factors in being a successful real estate investor. While an accredited and known investor will have little trouble obtaining a bridge loan, less experienced borrowers with less than stellar financials or who are new to the game will almost always be stymied in their efforts to quickly obtain one.

The Challenge

For this singular reason, new real estate investors should try to develop a relationship with a bank or credit union before they actually want to purchase a property so that they can act in a relatively expeditious manner.  Unfortunately, most traditional lending institutions are just not equipped to deal with bridge loans for small- to mid-level investors.

The Answer

For this reason, a proactive, real estate investor will look to other sources such as private money lenders for their bridge loan needs. Private money lenders bring together an assortment of lenders, borrowers and associated real estate experts to create opportunities for those wishing to invest on either end of a real estate deal. It’s where the smart money looks when they need money in a hurry.