Bridge Lending: You Need This Tool in Your ToolboxJack Miller
You’re in the business of providing permanent financing for all types of residential properties from single family homes to multi-family properties. You also have solid resources to fund certain types of commercial properties. But as it relates to commercial, you understand these properties are underwritten a bit differently than a downtown condominium. Commercial properties are those that generate income for their investors. But there are times when you run across a deal where the investor has gone to a bank and was told “no” but could possibly say “yes” if the property was improved, repaired or rehabilitated enough to qualify for permanent financing. In this situation there are actually two loans you could make money on. That is if the property meets the bank’s standards. That’s why you need a bridge lender who can make that happen for you.
A bridge loan is a temporary one with a single, primary purpose- to acquire the property, make the needed repairs and either flip the property or obtain permanent financing. The bridge loan acquires and the permanent loan pays off the bridge loan. With this strategy, your client obtains the funds needed to buy and rehab with our bridge loan and we pay you the commission. Provide us a loan application, a recent credit report and tell us the story.
While we do want to know a little bit about your client what we’re most interested in is the exit strategy. Maybe your client would rather not disclose annual income or the credit report could use a little work. But it’s the story, or the exit that counts most. In other words, once the property is acquired and stabilized, how will your client pay off the bridge loan when it comes due? A bridge loan is indeed a short term solution. It’s not designed for long term financing, that’s what a permanent loan does.
Let’s say there is an apartment building that has been poorly managed over the years. The owners failed to find and keep a responsible property management company and in return the entire project needs more than just some cosmetic work. Tenants aren’t renewing their leases and are finding other places to live. Current occupancy rate is heading toward 50 percent. The owners have tried going back to their bank time and time again but the bank refuses to lend until the property has been repaired and stabilized. But that’s the Catch-22. The bank won’t lend because of the condition of the property but that’s the reason for a loan in the first place.
This is when you open up your toolbox and take out your bridge loan product. Our bridge loan is the ideal product in this situation. Your client goes back to the bank and asks for a loan commitment should the property be repaired. The bank agrees but only if after the repairs have been made and a new inspection and appraisal reviewed. If the property is repaired, the bank will provide a permanent loan. And that’s the exit strategy. We’ll provide the funds needed to buy and repair the apartment building knowing that at the end, our loan is replaced with a permanent one. You now get paid on two loans. Without the bridge loan however, you don’t.