Already got your foot in the door with property investing and looking to invest in your next project? Bridge loans are a popular financing option for real estate investors in your situation.
Before you can decide whether or not these loans are right for you, you need to understand their benefits and drawbacks. Here, we’re outlining the pros and cons of bridge loans that you should know about before using them to fund your next real estate project.
Pros
Here are the key reasons why bridge loans can be a great choice for property investing:
They Give You Speed
One of the biggest advantages of bridge loans is that they give you fast access to capital, making them ideal for time-sensitive deals. Let’s say you’re looking to buy an action property or get your hands on a distressed property that’s receiving a lot of attention. Most hard money lenders approved these loans in a matter of days. You’ll have speed on your side if you choose to fund your project with a bridge loan rather than a conventional alternative.
You Can Buy Without Selling
If you want to keep the momentum going with your investing or you’ve just spotted a new project that you want to take advantage of ASAP, you’ll benefit from bridge loans as a financing option. With a bridge loan, you’ll be able to buy a new property before selling an existing one, so you don’t have to worry about stagnant time between making a sale and finding your next project.
Loan Terms Are More Flexible
Finally, bridge loans tend to have much more flexible terms compared to traditional loans, making them a good option if you don’t want the rigidity of something like a mortgage. You’ll be able to get a bridging loan even if your credit is bad, too, so you’re not held back from starting your next project as you might be with a traditional bank loan.
Cons
On the flipside, there are a few setbacks of bridge loans to be aware of:
Interest Rates Are Higher
It’s worth being aware that bridge loans typically have higher interest rates and fees than conventional bank loans. You’re paying for the speed, and bridge loans are only intended to be short-term, so you want to minimize your interest payments as much as possible.
Risk of Holding Two Properties
Because bridge loans have a short repayment period, another potential issue with these loans is that you have a lot of pressure to complete your first project quickly and sell. If the first property doesn’t sell quickly, you’re at risk of holding two properties (and loans), which will add unnecessary financial pressure to your venture.
Takeaway
Bridge loans can be the ideal option for certain real estate projects, but that doesn’t mean they’re the right fit for everyone.
Hopefully, this guide has given you the knowledge you need to make an informed decision when it comes to financing your next project.
