The bridge loan serves as a great solution for the CRE investor to take advantage of solid deals available to them, especially when time is highly competitive. For instance, there can be a possibility when purchasing properties through an auction.
Herein it is quite important that the buyer has access to the funds as most of the auctions require the funding within a month. In such a short span of time, the bridge loan can greenly help reduce the time between the selling of one property and the purchase of the other.
There are different reasons and ways how one can make use of the bridge loan. But what the investors might not know is that the bridge loan can also be used for purchasing and redeveloping lands. The guide here will provide you with clear detail about it.
The basics
The bridge loan is basically used to purchase or redevelop the land work, which is just as same as if you were purchasing the property. In either of the cases utilizing the bridge loan will come with a higher interest rate when compared to the other traditional loan options. But having access to the funding with the bridge loan will be a lot quicker than any other funding.
When it comes to purchasing land with a bridge loan then, the exit strategy is highly important as it will be the deciding factor as to whether or not the lender will provide the funding. Besides this, the lender will go for a credit check, look for experience, and an offline deposit will also be required.
How can a bridge loan be used?
There are different ways the property developers might make use of the bridge loan. Here are some of them.
- They can consider using the bridge loan when they own a plot of land with proper planning to build on it, but there is no capital for starting the work.
- For funding the project completion. Thus allowing the builder to get it off the ground and get the return for the investment.
- It can be used for the purchase of land one intends to build to put it up as a rival bidder.
- The loan can be used for purchasing a property that the developer might intend to redevelop at auction.
Using bridge loan for the development
The bridge loan is available to reduce the gap between the mainland credit that would be available and the incoming debt or to provide the capital required by the borrower when there is a need for quick funding.
The loan serves is the best choice for all projects. No matter whether there is a need to build a property from scratch or to add an extra room to a building, the bridge loan serves to be helpful. However, the only issue herein is that the bridge loans come with a higher interest rate.
Deposit required for the bridge loan
In straightforward deals for the bridge loan, the loan-to-value ratio will typically be between 70-75%. This would mean that it is the responsibility of the borrower to pay a deposit of 30 to 35%, as the interest payments will also be factored in.
When it comes to higher-risk commercial deals like the petrol station and the restaurant, then some of the lenders will reduce the LTV to about 60% or even further 50% to keep themselves protected. The higher LTV values are available under exceptional cases when the borrower can put up additional properties or assets that can be given as security.
But this would mean paying extra valuation fees. Also, there would be a risk of having multiple properties given as collateral when unable to pay during the end of the term.
What will you require?
When there is no planning permission required to get the bridge loan, it can be extremely helpful for sealing the deal. The lenders, however, will have more confidence in the completion of the project if you have received relevant permission to proceed with any proposed enhancement before time.
The risk of the deal herein will be quite low, and one will have more lenders interested in providing the amount required for the project.
Increase the odds of success
As lenders will have increased liability, they are often considered to be more conservative when it comes to getting the approval of applications for bridge loans for land purchases.
In an effort to provide better insights on the specifics and improve your chances of getting approved for the land development, you need to focus on the following areas.
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Property portfolios
If you are able to show a portfolio that comes with a proven track record of successful completion of previous projects, then most of the lenders will be interested in approving you for the bridge loan funding.
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Exit plan
A well-detailed and solid existing strategy is quite critical for securing a bridge loan for land development. When there is a good exit plan, it will be able to map out the specific ways you are planning to pay the loan amount.
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Credit score
The bridge loans are not only provided to those with a great credit score, but herein higher credit score will offer the lender more assurance that you are able to fulfill the financial obligations. Thus it will make them happy, and there will be better chances of getting approval easily.
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Planning formation
It is vital that you plan ahead as most of the lenders will ask you to submit sufficient evidence that states the permission for developing a land before they will actually agree to provide the funding for the project.
Making the purchase of land using bridge loans can be quite a valuable option for the investors who want to acquire the funding. Thus it would provide them with a clear exit strategy and the evidence which may be needed to convince them to provide the loan.
Using bridge loan for renovation
It is absolutely possible for the borrower to make use of the bridge loan for the renovation of the properties. The bridge loan generally is used for this purpose as developers can use the fund for renovation and then sell the property for a higher amount or can even borrow money against the increased value of the property from the mortgage lender.
This means the exit strategy herein is vital to seal the deal. The bridge loan flexibility also allows the borrowers to secure renovation funds for properties in various states of despair. In fact, even the building mainstream lenders will consider unmortgageable so long the plans make them habitable again are realistic.
How long will it take to get the bridge loan?
Acquiring a bridge loan can be quite easy when you have got solid proof of your previous experience and the exact plan. It is possible to get the required funding in a few days. The property valuation, the exact strategy’s strength, and many other factors determine the timeframe when the funds become available.
But generally, it can take 3 to 4 weeks. However, they can be made available sooner, depending upon the circumstances. It is vital that you speak with an advisor to get customized advice about the bridge loan finance and how so you can raise the capital.
But a vital thing to note here in this is that not all bridge loan lenders are good. There are some that might start creating trouble when you fail to make the payment on time. Thus it is advised to research well and choose a lender that can actually keep up with the obligations and guarantee there would be no concerns later on.
Despite all the available options, you need to compare them in terms of the experience and different other factors. Besides, it is essential that you have a proper idea about the rates and other requirements that one needs to fulfill to get the bridge loan on time.
Be it the LTV value or the interest rate understanding it all in advance will avoid any complications in the future. So it is just the perfect time for you to start online research to know about the options and then choose the one that is best for you.
Conclusion
The bridge loan can be quite helpful for property development or innovation. But getting the required funding comes with certain issues. It is essential to have a proper understanding of all the essentials so that there are no risks. Besides, when there is a need for funding quickly, then you need to have solid proof.
The new investors and the time industry are the ones who will face the most complications. So it is advised to take help from someone who is reliable. You can consider contacting Private Capital Investors. As a trusted firm in the industry, they will keep up with all the obligations and assure to provide the best possible help.
They have got experts who have a proper understanding of the industry. They know how to find a good lender and get the loan at a good rate. With expert help, you will have a better chance of getting the assistance you need to find the funding and know where to invest or what measures can be taken to maximize the return.
