Why You Might Want to Try a Commercial Bridge Loan
In the realm of commercial real estate investment, decisive action can carry a lot of weight. In order to carry out these commands, the investor usually has to have access to adequate amounts of capital. On some properties, a commercial mortgage is not readily obtainable. If the property is not already producing a steady and predictable income, most banks and mortgage firms will likely pass. The typical investor could possibly lose money due to lack of funding for a project. To fill the need of supplying money for purchasing commercial property to improve, financial institutions offer bridge loans. These short-term loans charge higher interest than a standard mortgage but can enable investors to enter lucrative deals that would otherwise not be possible.
Making money in real estate requires mastery over the cyclical movements of the market. When prices are low, investors need access to capital to purchase properties that may need improvements to start producing income. Banks and mortgage companies do not typically have much tolerance for these types of potentially risky propositions. Commercial bridge loans can help investors take advantage of low pricing on typically distressed properties. Getting a great deal upfront will usually effect what profit the investor gets to realize from the deal. Obtaining a bridge loan can allow an investor to purchase a potentially profit-producing property when conventional lenders do not yet see its value.
To be successful, the investor should plan the deal in complete detail. Generalities may be fine for rough estimates to determine if a deal is feasible, but before bridge loans are considered, the numbers should start to become more concrete. The planning should include calculating the amount of loan payments that will have to be made before the property can likely qualify for a conventional mortgage. Delays should be factored into any estimates since they are the norm on most construction projects. Gaining a basic understanding of all the work that must go into upgrading the property should help the investor create realistic timetables for the completion of each project stage.
Bridge loans are short-term loans with a relatively high level of risk involved. Normally, this situation results in higher interest rates, and these loans are no exception. Also, a balloon payment may be associated with the end of the loan term. For these and other reasons, bridge loans are generally used for acquiring money for the initial investment. The goal is to convert the bridge loan to a traditional commercial mortgage as soon as possible.