Regardless of their experience level, real estate investors utilize bridge loans to grow their real estate investment portfolios.

Read further to learn how this can work for you.

What is a Bridge Loan?

A bridge loan is a short-term loan to provide financing during a transitionary period, such as when a builder or flipper has recently completed a project and is awaiting the property to sell, or when a new rental property is in need of seasoning before being eligible for long-term financing.

Bridge loans are among the most common asset-based loans offered by private lenders. Offering short-term financing based on the current value of a property, bridge loans provide the funding needed until more permanent financing is secured or until existing obligations are removed (i.e., a property is sold).

Receiving the bridge loans allows the borrower to cover upcoming expenses in between paying off past projects and wrapping up their loose ends.

Bridge financing or bridge loans help real estate investors free up available cash for other ventures, also referred to as gap financing or swing loans. and interim financing.

How Does Bridge Financing Work?

Bridge loans offer shorter-term financing than conventional loans and provide immediate funds to meet current obligations. A bridge loan can vary in costs and payment terms, depending on the lender. Some lenders require regular monthly payments; others may include upfront and/or end-term or lump sum payments to the loan structure.

In general, bridge loans have fewer guidelines and offer a faster approval process than traditional loans, providing maximum flexibility for short-term real estate investing, and making them ideal for investors requiring fast and convenient access to funds.

With the property assets and a clear plan to repay the loan, real estate investors are able to accept the higher interest rates associated with bridge financing. While typically issued with a higher interest rate than longer-term debt, lenders can structure a bridge loan to be non-recourse.

Under these terms, the property itself is the guarantee attached to the note. The borrower’s exposure is limited to property and holds no personal liability, even if the value of the property does not cover the remaining loan balance.

When Do Bridge Loans Make Sense?

As discussed, bridge financing is used for many situations and meets the needs of real estate investors of all levels of experience. Some typical scenarios where these loans are advantageous include:

• Allowing time to sell a renovated home for maximum value and ready for your next project
• To quickly close on a foreclosed, bank-owned, or distressed property for renovation before another flipper takes the property off the market
• Allowing time to acquire permits and update the investment property to improve your ROI
• Enable the completion of rehab and renovations or stabilizing rental history prior to securing longer-term financing

What to Think about When Considering Bridge Loans

Gap financing can be a boost for immediate obligations in the short term. But think about how the future expenses from a high-interest loan will affect you.

Pros of Using Bridge Loans in Real Estate

The money you get from a bridge loan can help you have more spending options when looking at new homes. It means you have more liquid, or cash, for those sellers. They in turn will be more likely to want to work with you instead of waiting for the promise of money in the future.

Homeowners also have less stress when selling their homes while buying a new one. From a business standpoint, companies have freedom with bridge loans to take on ambitious projects.

Cons: What Could Possibly Go Wrong?

Bridge loans come with higher interest rates. This happens for a couple of reasons. Because these loans cover shorter-term periods, lenders charge higher interest to keep the value of their investment over time.

Since gap financing covers cash shortages, bridge loans carry an extra risk for lenders. They expect to immediately receive dividends from their borrower’s future assets. But sometimes, unforeseen circumstances can affect sales.

If someone takes out a bridge loan because they owe a lot of money, but can’t pay the bridge loan as promised, they bury themselves into even more debt and can create further financial strain.
Also, borrowers have to pay back using their own dividends. With the extra interest, overall profits are reduced and can result in an overall loss.

Less Cash Doesn’t Take Away Your Options

If you’re an experienced real estate investor and are ready to buy—but don’t want to wait to sell—bridge financing provides ready opportunities for assistance. LYNK Capital has a suite of customizable financing products to suit your individual investment objectives.

As you plan your next flip, it’s critical to know what upgrades increase home value. The world looks a lot different in 2023 than it did even a year ago, with house valuations changing and would-be buyers commanding more control and demanding optimal value for their purchase.

We’ll take a look at some home improvements that often add value, taking into account recent trends as well as tried-and-true tips for home flippers.

Prioritize the Right Projects

To make the most of your renovation project and realize the highest return for your investment of time and money, there are some fixes and improvements that far outweigh the others. You’ll want to factor in which updates you can tackle to maximize the resale value and those that are just not worth it.

There will of course be some items on your list of improvements you cannot avoid, including anything that is needed to bring the home into a livable state and meet required codes. These items can include large-ticket efforts such as ensuring a roof that doesn’t leak, has a suitable HVAC system and there are no insect or rodent infestations.

Simple but necessary updates such as CO2 and smoke detectors throughout the home must also be on the punch list. However, if you try to tackle every possible upgrade—even in relatively newer homes—you will likely find an endless list of items to address that could be insurmountable.

One of the biggest impacts comes from adding living space. While this sounds simple, structural additions to a home can be time-consuming and costly, especially if not included in your original rehab plans.

The advent of so many remote workers should also be something to consider. Adding a dedicated space for a home office can really tip the scales for sellers. In some cases, converting a walk-in closet into a functioning office space will do the trick.

Creating an open floor plan, where walls and doors can be removed or reconfigured to optically increase the space without increasing the square footage can also increase the appeal and value to would-be home buyers.

However, if there is an option to finish a basement, an area above a garage, or even enclose a screened patio, flippers can see returns of up to 75% above their investment.

Button Down Your Budget

Before starting a house flip, it’s important to identify what improvements are in scope and will have budget allocated and those that will not. While there may be overruns of cost and or time, it’s advisable to ‘plan your work and work your plan.’

We’ve all learned that kitchens and bathroom upgrades command a significant return if done properly, but caution should be taken to avoid overdoing it in comparison to the whole home.

A simple beach bungalow often won’t see the same return on newly installed marble countertops and high-end appliances as would be earned in an upscale suburban neighborhood. In some cases, simply updating the faucets and fixtures is enough to entice buyer interest.

Floors in poor condition will need to be addressed, but in many cases, laminate hardwood or luxury vinyl plank (LVP) is a cost-efficient, easy-to-install upgrade that holds value in resale.

Walls, interior and exterior, should have a fresh coat of paint in a neutral tone. In some cases, replacing interior doors and adding trim such as crown molding will enhance a room without much-added expense.

Focus on the Outside as Much as the Inside

Curb appeal and outdoor spaces should not be excluded from your attention. Not only is the exterior the first thing potential buyers see, but it also sets the tone for the available property.

Everything from trimming back overgrown trees, replacing older mailboxes, and cleaning the walkways will all add inexpensive, high-impact fixes. Installing shutters on the front of the home, replacing old and dented garage doors, and adding outdoor lighting, can all dramatically improve the approach to the house.

Experienced flippers have followed the previous suggestions for decades and seen greatly improved ROI for the flips.

However, some items previously considered less valuable fixes are now ascending buyers’ wish lists and reducing days on the market, including eco-friendly features (such as low-flow toilets, and energy-efficient appliances and windows), smart home components (thermostats, lights, keyless entry, doorbells, etc.), and strong wi-fi (and/or available ethernet ports).

Evolving as a temporary solution, stay-cations have fortified homeowners’ interest in enjoying their own private outdoor spaces. Whether a deck, an outdoor kitchen or barbecue patio, or a firepit—or better yet, an outdoor fireplace—consider the appeal a personal retreat adds to your investment property.

As recent demand has dramatically increased both the wait and costs to install a new pool, the viability of adding one in your next flip is minimal.

Stay Focused on High-Impact Improvements

It may sound simple to stay focused on high-impact improvements, but even the most experienced flippers can get caught up in adding to the punch list, adding to the costs, and not bearing in mind the return on investment. It’s vital to remember, a renovation for sale is an economic process.

Personal taste will certainly affect some design elements but should not override what will deliver a strong return on investment nor should they derail the timeline to completion. It’s not about imposing your personal style on buyers but getting a house prepared for sale that appeals to buyers who value and are willing to pay for the improvements you’ve made to the home.

In his 37-year career, the Managing Director of LYNK Capital, Ben Lyons, has learned a lot about real estate and investing. As a financial advisor, investor, and business owner, he has experienced his share of highs and lows, starting with modest roots in a middle-class family in Baltimore, MD. It was a chance encounter at an early age with a local real estate agent that formed the foundation for a career in real estate.

By the age of 25, he owned 100 rental properties and had a million-dollar lending business.

The beginnings, as they say, were humble. Originally planning for a future in community college, he instead went to work for a real estate company at the age of 18 for free. Determined to learn all he could about the business, he convinced his boss to place an ad in the money-to-lend section of the newspaper – he would work all the leads and split the profits with his boss 50/50. In January 1985, he collected over $10,000 in mortgage broker fee revenue, receiving $5,000 after the split.

“In one month, I went from earning $600 a month to $5,000. I thought I was rich. It was extremely exciting and only increased my motivation to learn and grow.”

After that, he read everything he could get his hands on and took mentors to lunch or dinner to learn what they knew. By the age of 21, he became the youngest licensed mortgage broker in Maryland and that year purchased a four-bedroom, two-bath home with a pool. His friends moved in and paid rent – becoming his first investment property.

Since that time, he has owned or managed over 375 residential and commercial real estate projects – and his lending organizations have produced more than $6.5 billion in mortgages. (He was previously an initial investor and large shareholder of a commercial bank, a title company, and three mortgage banks.)

His interests in real estate and financial freedom have produced some interesting insights – after decades of talking to hundreds of investors (many of whom are financially wealthy), he noticed that while everyone’s path to wealth was different, they all shared four things in common:

• They created predictable and scalable monthly investable income to reinvest for growth.
• They acquired assets, including stocks and real estate, for long-term growth.
• They learned how to leverage people, money, and knowledge to accelerate their success.
• They learned how to utilize time effectively.

It is on these principles that Ben believes anyone can find their path to financial freedom. He has recently authored his second book – this one in partnership with Ortus Academy, a financial literacy training company – to share his personal journey and financial formula for success. The book, titled From Worry to Wealth, is available for purchase and download.

“One of my favorite things is sharing my financial journey with others. There are several factors to determine financial success: our attitude about money and our education, which is not necessarily a college degree. Wealth is available to everyone. By understanding the components of wealth creation and applying them to your unique circumstances, you can build your own future, starting today.”

You can get a free download of the first three chapters of Ben’s book From Worry to Wealth by clicking below:

House flipping has continued to thrive in recent years, and the potential profits have attracted many investors to the marketplace. While the potential profits are a big draw, you must do your homework before beginning a project in order to ensure the highest probability of success. A few of the tips listed below should help when considering a new real estate investment.

Choosing the right house to purchase and flip is the most important decision to make when beginning to plan your investment. According to an article from realtor.com, investors should look for homes that have “good bones” meaning that they are structurally sound and have a lot of potential to be fixed and resold as good quality homes to make a sound profit for the real estate investor. Having a good base to build around will help to make the flip easier.

Once you’ve found a good investment property, you’ll need to determine how much your’re willing to pay for it. Running comparables for other similar properties that are in the same neighborhood can provide a good sense of what the home would be worth once repairs have been made. The After Repair Value or ARV is another great estimate for what the home will be worth after the rehab is been completed. A good rule of thumb is to keep your purchase price and rehab budget below 70% of the ARV.

Finally, as a savvy investor, you should network and find out who the best local contractors are and who may be the best to tackle your project. You should ask for estimates on renovation costs from contractors and get references from previous clients who can attest to the quality of the contractor’s work. Hiring a good quality contractor goes a long way in helping the entire flipping process go as smoothly as possible. You should also budget conservatively and plan for any unseen extra costs that may occur during the flip to give flexibility should these problems arise.

Flipping houses can be very exciting and, when done right, very profitable. By picking the right property, estimating expenses correctly, finding the right contractor to do the work, and having a sound estimate of the resale value of the property once the rehab is completed, you can put yourself on the path to great investing success.

Source: Realtor.com

Once you’ve closed your fix and flip or new construction loan, the next exciting step is to start construction! As you complete work on your project, you’ll want to draw funds from your loan to pay for the work that you’ve done. To do this, you’ll submit a Draw Request to your lender.

Draw Schedule and Construction Budget

Prior to closing your loan, you or your contractor will provide your lender with an itemized schedule of work to be completed, along with the associated costs. This will be organized on a form called a Draw Schedule that will become the basis for submitting your future draw requests.

Most loans will permit you to take between three and six draw requests, though loans for more complex projects may allow more. If you anticipate needing to more take more draws, your lender may permit that, but with more fees charged (to offset the lender’s higher administrative costs).

Draw Requests

When you’re ready to submit a draw, you’ll complete a Draw Request form, listing the specific items of work you’ve completed and the associated cost. Some tips for completing your draw request:

• You can only request draws for completed work. Most lenders will not reimburse you for materials purchases, contractor deposits, or similar items. Even if you’ve purchased and paid for those kitchen cabinets, don’t expect your draw request to be approved if they’re sitting on the floor – they must be fully installed.
• You must submit your draw requests in accordance with your originally approved budget. Even if your costs go up, your lender will issue draws from your original Draw Schedule, though your lender may allow some flexibility to re-allocate your budget between items – if you can show savings in other areas. If you change your plan significantly, though (such as changing room counts or other significant alterations to your plan), don’t expect your lender to blindly approve your request. Significant changes to your construction budget can only be made with your lender’s approval and may require your loan to be re-underwritten.

Inspections

After receiving your Draw Request, your lender will schedule an inspection of your property. The purpose of this inspection is to obtain photos showing that the work you’ve listed on your Draw Request has actually been completed. This inspection will usually occur within two or three days of your Draw Request submission.

After receiving the inspection photos, your lender will determine the amount of work complete and issue your draw. If items you’ve requested are not complete, the amount paid to you will be reduced to match the amount of completed work. In such event, you can re-submit those items on a future Draw Request once they’re complete.

How Long Does the Process Take?

If there are no issues, most draws can be paid within three to five business days. You can help speed up this process by accurately completing your Draw Request and making sure that it matches to your original Draw Schedule and budget. This will make your lender’s job easier, meaning you can get your money more quickly.

You have a new residential construction project planned out, but now you need to obtain financing. If you started this process by visiting a conventional bank lender, you probably left their office feeling a bit disappointed. Banks have strict lending requirements that prevent many construction projects from obtaining traditional financing. Fortunately, there are other ways to fund your project.

Here’s a look at five lending options for new residential construction projects:

Bridge Loans

Bridge loans may be an option if you have equity in another property that you can use while building your current project. Taking cash out of your other property can be a faster way of obtaining financing, as your lender won’t need to evaluate your construction plan or experience (since they’re lending on the completed property).

Construction to Permanent Loans

Construction to permanent loans are available through some banks and offer short-term construction financing, followed by a traditional 30-year loan. In order to qualify for this type of financing from a bank, the borrower must meet all of the requirements for a traditional 30-year loan. These loans are typically designed for homeowners who plan to live in the property after completion, and likely aren’t appropriate for investors looking to sell the property.

Private Construction Loans

Some private lenders, like LYNK Capital, offer loans specifically for investors looking to build new construction projects. This lending option can provide flexibility and fast funding, and lenders will typically underwrite these loans primarily based on the property value and your construction experience. Unlike banks, private construction lenders will not typically scrutinize your tax returns and calculate onerous debt-to-income ratios. Most private construction loans, including ours, are not available for owner-occupied properties. If you’re building a new home with the intention of occupying it yourself, this loan is not right for you. Investors and developers can benefit most from private construction loans.

Hard Money Loans

Many private lenders offer hard money loans. These are similar to private construction loans, but are tailored more for borrowers unable to qualify for other forms of financing. Interest rates on hard money loans are typically higher, but more flexibility may be offered in underwriting requirements. Just like private construction loans, hard money loans may not typically be used to finance owner-occupied properties.

Loans from a Private Investor

If you know an investor with cash available and are able to work with them on your new residential construction project, then great! Private investors can offer the most flexibility for your project if they’re willing to negotiate terms. However, unless you know someone who is an investor or someone who can put you in contact with an investor, financing your project with this option will be difficult.