Can Bridge Loans Work for Your CRE Investments?
It is useful to understand the value bridge loans have for commercial real estate investments. Your CRE investments can benefit from them in a number of ways, such as quick access to funds and overall flexibility with payment. It is not a question of whether they can work for you. They have a particular set of properties that make them an attractive option, but the decision to use them with your CRE investments is entirely up to you.
Easy Access to Cash
Bridge loans are short-term loans. They are meant to help alleviate any financial needs that occur during the refurbishment of your property. For example, you may have chosen to buy a piece of property that you intend on turning into a source of income. However, your property may still be in need of renovations. During that time, you will not be making any money off your piece of real estate, which in turn will prevent you from paying off any existing commercial loans. A commercial bridge loan could easily remedy your situation by offering quick access to needed cash. Another example would be taking a loan to buy a property that is only available for a short period of time due to popularity. Instead of having to wait for your traditional loan to be approved, you can use a short-term loan to finance the transaction. That way you can promptly purchase the property in time without having to readjust your schedule.
Prepayments and Extensions
Unlike a standard commercial loan, bridge loans do not have prepayment penalties. This is because they are short-term, usually taking up about six months to one year. Standard loans have prepayment penalties in the event that you pay off your loan quicker than expected. You can apply for extensions of about six months to one year as well if needed. These loans have higher rates of interest compared to standard loans to offset risks. Payment usually occurs once your property is finished and ready for business. For example, once the real estate you purchased has completely been renovated into a new set of apartments, you can accept in new tenants and use that money to pay off your loans.
CRE investments often involve scoping out your chosen piece of real estate and putting the time and effort needed to turn your property into a viable source of income. Bridge loans are an excellent way to get cash and pay off payments in the meantime. Their flexibility allows you to apply for extensions without having to pay any prepayment penalties.