How I Used Bridge Lending to Start Investing In Real Estate w/ $0 Down
There I was, 20 years young and as eager as a dog waiting for his treat to get my feet wet in the world of real estate investing. I just finished reading Robert Kiyosaki's book Rich Dad, Poor Dad and had recently immersed myself into this exciting new world. I had decided to journey down the path of the fix and flip model (like on the TV shows) however there was only one issue.. finding the money to take on my first investment project.
Being a college student with little income, not much credit history, and no experience investing - I figured this would be my biggest hurdle. I did have a partner (not family) who was willing to invest up to $30,000 (I'll discuss how this came to be in another article) but it was still well short of the acquisition price of a project at the time ($100k-$300k). After some research, I came across this type of program called a Bridge Loan... little did I know, this would launch the start of my career in real estate.
What is a bridge loan?
Simply put, a Bridge Loan is a short term (1-2 year) real estate loan used for specific properties that a traditional lender is not willing to finance. These properties tend to have significant deferred maintenance or (if commercial) higher than usual vacancy - making it the perfect opportunity for real estate investors to fix and flip, or hold for equity and cash flow once fixed up. A bridge loan is made to a borrower with the intention that the borrower will fix up the property and sell for profit, or refinance into a traditional loan and hold to rent out for monthly cash flow - both options paying off the balance of the principal when due.
These loans typically carry the following terms:
- Financing up to 65-85% of the purchase price and up to 100% Repairs
- 1-2 year terms, with interest only monthly payments
- Rates Between 7-12% and Origination Fees of 1-5%
- Approval is Based off After Repair Value (ARV) of Property - not income/credit driven like most loans
- Ability to Fund within 1-2 weeks
Why Did I Use It?
In addition to my investment partner, this was the exact financing I needed to get into my first investment opportunity.
Although the cost of funds was higher than a traditional real estate loan, the 12% interest and 5% origination fee that I paid was peanuts compared to the $60,000 net profit my partner and I earned on that first deal. After our 50/50 split, I walked away with $30,000 all while still carrying on my full course load in college and $0 out of my pocket to do the deal.
In short, these loans can ultimately allow an investor with limited cash take on more investment projects and earn more revenue. More importantly, it can accelerate the opportunity for you to get in the investment game, as it did for myself.
Does this story resonate with an opportunity you or a fellow friend have? Please share it or reach out to me as I'm now directly involved with this type of lending across multiple states!