Jafri Capital Blog

Bridge Loans – Commercial Real Estate

By July 25, 2019No Comments

Bridge Loans- Commercial Real Estate

Buyers typically take out bridge loans when securing short term financing to win deals in quick close situations or to add value to a property if it is distressed or vacant. While this sounds risky, it can be extremely beneficial and financially savvy while working with a company like Jafri Capital.

Why are these loans necessary?

Because short term bridge loans are temporary and secured by an existing property, the bridge loan fills the gap between the sales price of a new property and a newly acquired mortgage. After the new real estate has been secured, the previous property will be sold to pay off the bridge loan. It is effectively borrowing a down payment on new property that is expected to turn a profit in the future, while the present investment is possible thanks to a bridge loan.

Bridge loans are popular in certain types of real estate residential markets, but they are especially popular in commercial markets. Weighing the benefits and drawbacks can help you decide if a bridge loan makes sense for you.

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Pros and Cons of Bridge Loans

Pros of Bridge Loans:

    • Access debt quickly
      • Investment property can be funded in as few as 3-5 days.
    • Present a stronger purchase offer
      • With a bridge loan, an all-cash offer or sizable down payment become offer options that have a much better chance of being accepted.
    • Receive bridge loan approval after being denied by banks
      • Bridge lenders are able to lend to borrowers with bad credit and issues like foreclosures, discharged bankruptcies, loan modifications, and short sales as long as the borrower has significant equity within their real estate.
    • Attain a bridge loan against current-listed real estate
      • Most institutional lenders will not consider a loan against a property that is currently listed for sale. These types of lenders do not want to go through the process of approving, underwriting, and funding a loan only to have the loan be paid off within 2-3 months.
    • Gain without income documentation
      • Bridge loans may be the only type of owner-occupied financing available for self-employed individuals, seniors, retirees, and those without income as long as they have equity in current property.

Cons of Bridge Loans:

    • Higher Interests Rates
      • Generally speaking, there are higher rates for the fast approvals and funding provided by a hard money bridge loan lender.
    • Higher Transaction Costs
      • Borrowers will have to pay for standard real estate transaction fees, including title insurance, escrow, notary and recording fees.

It’s important to consider bridge loans as a strictly short-term option.

One of the biggest benefits of bridge loans is that the financing provided is strictly short-term. Most other loans are geared towards long-term expenditures, such as mortgage and college tuition. Those expenses require the borrower to pay the loan off over a long period of time. The longer the loan lasts, the more likely that the borrower will suffer from some form of financial hardship, which makes repaying the loan difficult.

Payments are structured in a way that allows the borrower to repay the loan in full over a limited period of time. Also, if and when the borrower makes the payments on time, his or her credit rating will improve significantly, allowing qualifications for long-term loans they would otherwise be ineligible for. In reality, payments will be bigger. However, Jafri Capital is here to make a budgeted plan that can work for your investment vision.

An Example…

Recently, Jafri Capital arranged a bridge loan secured by real commercial property in New Hyde Park, New York. The borrower plans on renovating the property for his business to expand on his proven success in the field, so this was a great opportunity to use a bridge loan. Also, by using a bridge loan, the Jafri Capital team was able to close the deal in just 2 weeks.  Reach out to Jafri Capital for an example of a bridge loan term sheet.

Final Thoughts: “You Get What You Go After”

Bridge loans are a relatively new concept, straying away from financial corporations’ traditionally structured, limited methods. In today’s world of opportunity, the ambitious investors that take a direct path of action are often those who find success, and Jafri Capital is here to guide you to that success. Consider the endless investment possibilities with a consultation. Don’t hesitate to reach out to our team to see how your investments can be put to action sooner than later!

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