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.
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