Tag Archive for: real estate investment

How to Use a Bridge Loan to Buy a New Property

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What are your options when a past project is stuck on the market? Here’s how to use a bridge loan to buy a new property.

Gone will be the days of fix-and-flips selling within hours. 

In this new market, real estate investors need to prepare for the possibility of their projects staying on the market for quite a while.

To avoid a full standstill in your real estate investment career, you have to know how a bridge loan can help you buy a new property.

Buy a New Property with a Bridge Loan in 2022

Instead of selling in two to three days, we’ll soon see houses taking two to three months to sell, depending on size and location.

Your investment career can’t come to a halt just because a house takes too long to sell. What if you find a great deal while your old project is still on the market? All your capital is tied up in that first property.

Bridge loans solve this problem.

A bridge loan puts a lien on both the new property and the old property. This gives you the equity needed to close on a new house before the money from selling the old one hits your pocket.

Using a bridge loan to buy a new property is the number one use of bridge loans.

What to Look For In a Bridge Loan

Bridge loans are all about getting the right lender and the right position.

Terms of a Bridge Loan to Buy a New Property

It’s important to pay attention to the terms of a bridge loan. You want a lender who charges fewer points – even if their interest rate is higher.

You only have to pay interest in small, monthly chunks. With points, you have to pay a percentage of the whole loan. Since bridge loans are very short-term, you won’t end up paying much in interest anyway. However, you’ll still have to pay the points (regardless of how long you kept the loan).

Shop Around for Lenders

Make sure you shop around for the right lender for your bridge loan. Find out who does bridge loans, who can do them quickly, and who focuses more on the interest rate rather than other costs (originations, appraisals, etc.).

Bridge loans are meant to be quick, short-term, and relatively inexpensive. You want to find a lender who can provide that.

Read the full article on bridge loans here.

Watch the video here:

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What Is a Bridge Loan?

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How do real estate investors use these short term loans? What is a bridge loan?

A bridge loan is a very short-term loan – even shorter than the typical hard money loan. It’s used in real estate investing to fill any gaps left by a lack of funding. 

Most popularly, these loans help you bridge the space between one project and another.

Let’s say you’re just finishing up a flip. The house is on the market, buyers are showing interest, and now you’d like to get another property bought so you can jump right in to your next flip.

A true bridge loan covers up that gap between projects. You get the money to close on a new property before the first one is completely sold. A bridge loan lets you overlap from an old project to a new one.

When to Use a Bridge Loan

Real estate investors use bridge loans for all kinds of situations:

  • When you’re buying a new property and already have one listed for sale
  • When you need to cover down payment on a new property
  • When you find a great deal but your bank’s financing won’t be ready in time
  • When a wholesaler waits for a buyer’s money to come into the title company
  • When a hard money or traditional loan leaves gaps in a project
  • When you need to refinance a hard money loan.


Read the full article on bridge loans here.

Watch the video here:

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3 Ways to Refinance Out of a Fix-and-Flip

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This market can put your flips in a bad spot – here are 3 ways to refinance out of a fix-and-flip!

As a flipper, you’ve probably noticed the change in the market.

Properties are sitting on the market longer, and price decreases are not helping. When your flip lender comes calling for their money back, what are you supposed to do?

You have two options:

  • Take the price hit, sell, and cut your losses.
  • Refinance.

Often, refinancing can get you out of a bad spot and still let you come out with a profit. Let’s go over your options and review 3 ways to refinance out of a fix-and-flip.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where these 3 unique loans to refinance out of a fix-and-flip come in handy.

1. DSCR Loan

Are you open to keeping your flip for a little longer term? Would you convert it to a rental in the meantime? If so, a DSCR loan is a great way to refinance out of a fix-and-flip.

A DSCR loan is a type of rental loan, based only on:

  • Your credit
  • Rental income from the property (not your personal income)
  • LTV (appraisals, listing price, etc that show the value of the home)

If you’re considering a DSCR loan, let’s look at the pros and cons of shifting gears from a flip to a rental.

DSCR Loan Pros

A DSCR lender will loan you up to 80% of the value of the home.

Cash Flow Opportunity for Your Flip

Your options for a DSCR loan product are broad. You can get anything from an interest-only to a 40-year loan.

With these options, you can spread the payments out. With lower payments and a potential tenant, you can match the cash flow to break even on the property (or maybe even bring in positive cash flow!).

This cash flow frees up your money to buy more flips and keep your business going. With that free money, you can jump on the good deals that will pop up in the next few months.

“Easy” Loan

Some of the biggest advantages of a DSCR loan is how easy it can be to apply and qualify.

For this type of loan, there are no income requirements. You just need good credit and rent that covers the monthly loan payment.

DSCR Loan Cons

There’s one important trick to refinancing a house that’s been on the market:

The appraiser is going to use the last price the house was listed for in their appraisal.

It’s tempting to drop the price when you have a flip on the market to try and attract a buyer. But once you decide to refinance, your house won’t appraise for higher than that lowest listed price.

So, it’s important to decide what you want to do with a flip ASAP. If you know you may want to refinance, you don’t want to keep lowering the list price, or it will negatively impact you.

Pre-payment Penalty

All DSCR loans have some kind of pre-payment penalty. Many are for around 3 years.

This means you have to keep the loan for that period of time, otherwise you’ll be charged a percentage fee for paying off the loan early.

If you want to keep this loan on your property for less than 3 years, you’ll be stuck paying that pre-payment penalty with a DSCR loan.

Not Available for Rural Areas

Also, DSCR loans are not designed for smaller towns. They can be great if you’re in a larger community, but they’re just not available in small ones.

And as money tightens up overall in the real estate lending space, DSCR programs are tightening up too. Rates will go up, LTVs will go down, and they will concentrate more on city centers. 

Most DSCR loan programs go as far as 25 miles from a city. But anything that shows up rural on an appraisal will likely not qualify for DSCR.

2. Bridge Loan

A bridge loan is a short-term loan that’s designed to give you flexibility on flips that are slow to sell.

With a bridge loan, you’re free to keep the house on the market, or convert it to a rental. The main purpose of a bridge loan is to get you out of a tough situation with the lender of your flip. What you choose to do with the house afterward is flexible with a bridge loan.

Bridge Loan Pros

Bridge loans are designed to help you refinance out of a flip. It gets you out of your original loan quickly –which is crucial when you’re getting calls from your lender. Plus, it helps you from paying high monthly payments with no cash coming in.

Additionally, bridge loans:

  • have no pre-payment penalty
  • can be interest only
  • close very quickly.

Bridge Loan Cons

Too Short-Term?

Bridge loans are short-term – varying between 1 and 3 years. 

In our market, we don’t expect interest rates to trend down for at least another year. If your bridge loan only covers you for a year, that might not be enough time to carry you into a better market.

You’ll want your refinance bridge loan for at least 2 years to give you some flexibility with the property.

You may need to shop around – 3-year bridge loans can be difficult to find, and many are limited to 1 year only.

Low LTV

Bridge loans are usually only 65% to 70% of the house’s current appraised value. 

Again, remember that your listing price will have a direct impact on that appraised value. If you slide the price down on the market to attract buyers, your refinance loan will be lower.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When we meet with a client about how to refinance out of a fix-and-flip, we weigh DSCR loans against bridge loans.

There’s always a tipping point – usually somewhere between the 14th and 17th month of a DSCR loan – where the pre-pay fee becomes cheaper than a bridge loan.

Bridge loans typically have 2% to 4% higher annual rates over a DSCR loan. Always analyze this tipping point, and choose the right loan for you based on the length you’ll need it.

3. Real OPM

When it comes to real estate investing, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. Done right, OPM is a win-win for both parties.

OPM is the fastest, easiest, cheapest way to refinance out of a fix-and-flip. Real OPM is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We can help you find your tipping point between DSCR or bridge loans.

We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

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Why You Need More Bridge Loans in 2022

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Text: "Bridge Loans"

The real estate market is changing. Here’s what you need to know about bridge loans in 2022.

Have you used bridge loans for your portfolio in the past? 

In 2022, all money sources are tightening for real estate investors. Interest rates are rising, banks are reluctant to lend, and lender requirements have shot up.

You might find you’ll need more bridge loans than ever before.

Here are 3 ways you can use bridge loans for real estate investing in 2022.

1. Gap Loans to Supplement Hard Money

In the current market, lenders’ priority is to lower their risk. Many hard money lenders are limiting loans to 65% of the after-repair value (ARV).

If you could still complete a project under-budget at 65%, you’ll be able to find a lot of funding options. But if your project will take more than 65% of the ARV to complete, you might need to bring in a bridge loan.

A bridge loan can fill the gaps left by a hard money loan – whether for a down payment, rehab expenses, or carry costs.

You can get a bridge loan from:

  • A hard money lender
  • A hedge fund
  • Real OPM

OPM (Other People’s Money) is the ideal option for this type of gap funding. OPM is real money from people you know. It can be used to bridge gaps in investments, refinance hard money, and more.

2. Buy a New Property with Bridge Loans in 2022

Another effect of the upcoming market is the amount of time houses will take to sell.

Instead of selling in two to three days, we’ll soon see houses taking two to three months to sell, depending on size and location.

Your investment career can’t come to a halt just because a house takes too long to sell. What if you find a great deal while your old project is still on the market? All your capital is tied up in that first property.

Bridge loans solve this problem.

A bridge loan puts a lien on both the new property and the old property. This gives you the equity needed to close on a new house before the money from selling the old one hits your pocket.

Bridging from one property to the next like this is the number one way investors use bridge loans.

3. Bridge Loans for Wholesalers

Wholesalers use bridge loans, too. Sometimes called “transactional” or “wholetailing” loans, these short-term funds are also a type of bridge loans.

This type of loan bridges a very small gap. Usually, it’s just the money needed for one day until the buyer’s money comes into the title company.

With these types of bridge loans, it’s important for wholesalers to find a lender who will give 100% financing, without overcharging.

What to Look For In Bridge Loans in 2022

Bridge loans are all about getting the right lender and the right position.

Terms of a Bridge Loan

It’s important to pay attention to the terms of a bridge loan. You want a lender who charges fewer points – even if their interest rate is higher.

You only have to pay interest in small, monthly chunks. With points, you have to pay a percentage of the whole loan. Since bridge loans are very short-term, you won’t end up paying much in interest anyway. However, you’ll still have to pay the points (regardless of how long you kept the loan).

Shop Around for Lenders

Make sure you shop around for the right lender for your bridge loan. Find out who does bridge loans, who can do them quickly, and who focuses more on the interest rate rather than other costs (originations, appraisals, etc.).

Bridge loans are meant to be quick, short-term, and relatively inexpensive. You want to find a lender who can provide that.

How The Cash Flow Company Can Help

The Cash Flow Company offers DSCR loans, traditional loans, and blanket loans. Plus, we have the flexibility of hard money.

If you have any questions about bridge loans in general or our bridge loans in particular, reach out!

Email us with a specific deal or question at Info@TheCashFlowCompany.com.

Join our weekly call where we work with investors’ deals in real time, every Thursday from 1:15 PM – 2:15 PM MST.

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BRRRR Property Walk-Through

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Interested in succeeding as a BRRRR investor? Then check out this video! Matt Faircloth from Bigger Pockets gives us a tour of a property he invested in, and talks about numbers, lessons, and tips. Check it out!

Ready to tackle the BRRRR method and invest in your first property? Our team is here to guide you through the process and help you reach your investment goals. Contact us today.

 

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