As a real estate investor, it’s always best to have a financial toolkit that can help you get both a long-term and a short-term option. This way, you’ll get the proper flexibility to adapt to almost any kind of demand quickly and get what you want instantly.
But which financial plan offers such an opportunity?
Well, in this case, you can opt for something known as a bridge loan. We’ve discussed a little more about it in a later stage of the article. So, please read this article till the end and ensure to offer your own verdict regarding the same in the comment section below.
Bridge Loan – What Is It Really?
As the name implies, a bridge loan is about “bridging the gap” of your finance on an interim basis. With it, you can purchase a brand-new property before selling the house you’re living in right now. Hence, if you’re trying to become a real estate tycoon, it can offer the best bet.
A bridge loan can also serve as an excellent financial tool for an investor. For example, if you are looking for a short amount of money to invest in a house, you can get it from here. When you’re done selling the home, you can pay the amount back again.
When Should You Use A Bridge Loan?
Although the name or definition might suggest otherwise, you can use a bridge loan almost anywhere. The list may include the following –
- You’ve found a brand new home in a competitive seller market.
- You’re unable to pay the down payment for the house you’ve bought recently.
- You wish to purchase a new property without selling your current home.
- You cannot negotiate a critical home sale contingency into the upcoming purchase of the new house.
How Can It Improve Your Rental Portfolio?
Well, it’s pretty simple, though.
If you’re thinking about earning some rental income, you can simply get a bridge loan from a loan provider and buy a house. Now, you can use the remaining cash to make a change or two in the property (or maybe improve it).
Once you feel like it’s ready, you can simply rent it to someone.
And, as a bridge loan doesn’t really require you to sell your house before purchasing another property, you can use it to buy a few more homes and rent them.
Pretty easy, right?
In any case, before you get into the rental property business, I’ll ask you to talk to an attorney beforehand. They can tell you if you’re touching a legal boundary with your strategy or not.
What Are The Benefits (And Cons)?
The advantages of bridge loans can be pretty all-inclusive. Hence, we’ll only mention three of them in this section. However, if you have an idea or two regarding the same, comment below.
- With a bridge loan, you can pay off an existing property loan or buy a new property as you please. There are no boundaries on how you must use the money or something.
- A bridge loan can help you adapt to market shifts by offering the flexibility of not selling your current house immediately. So, even if you’re thinking of relocating due to your work or something, you’ll have that independence to do so.
- There’s no need to make any immediate payment right after you’ve acquired a bridge loan. Depending on who you’ve got it from, you’ll get around a year of time prior to making your first payment. Pretty impressive, right?
However, there’s a hitch.
Like the advantages, bridge loaning comes with a minute list of risks as well. These may include the below-mentioned –
- It has a highly high-interest rate. Besides, the closing rate can be expensive too.
- You might have to pay a prepayment penalty if you miss out on the pavement-relayed deadline.
- Managing more than a house at once can put a strain on your economic backdrop. This might affect your long-term financial planning as well.
When it comes to taking a short-term loan for buying a house, opting for a bridge loan can be pretty effective for you.
Nonetheless, if you’re considering getting into this segment, we’ll ask you to consider the risks too.
Or, you may also opt for an individual who’s well-versed in the aspects of bridge loans. It can help you get more know-how regarding the market and aid you in making the right call!