How Gap Funding Loans can be a HUGE benefit for Real estate investors?

Amidst the booming real estate market in California, it’s an irony that projects are halting or being abandoned by real estate investors because of the cash shortage. But sadly, that’s the situation every investor faces here when expenditures go beyond the sanctioned loan amount, thereby putting a question mark over the deal.

But gap funding is just like silver lining in the cloud! Because they are tailored for such situations where you run out of the money to complete your ongoing projects!

What is Gap Funding?

Also known as the second position loan, gap funding loans are used as the fund to close the deal when the first line loan amount from hard money lender is not sufficient.

It is useful when a borrower wants to minimize out of pocket expenses at closing or runs out of funds to complete the project on a time. Besides, it acts as additional funding to pay off down payments and monthly interests occurring from the 1st position loan.

Gap funding is opted for the fix and flips and new home construction loans for home builders. In brief, it is an emergency financial help for the ongoing project which is not provided by cash, equity or debt at that time.

For example, you have spent your entire loan amount from lender in buying the property only. Now, you need additional cash for later renovation work and other expenditures. You can’t take the risk to delay as it can cost your deal. In this scenario, gap funding is the most suitable loan type to opt for. It not only gives you an emergency funding but also makes you purchase the other deals.

On the basis of these points, it can be said that presence of gap funding loans is extremely important in California real estate market.

Things to Remember Before Applying for Gap Funding Loans

• A lender can be your equity partner, making him to share your profits.
• Gap funding loan is risky and expensive than the first line of loan.
• It is meant for experienced real estate investors and builders.
• Gap funding loan is suitable for high end projects.

When You MUST Ask for Gap Funding Loans?

• Run out of the funds from first loan in middle of your ongoing rehabbing or construction project.
• When you find more deals out of your budget
• Waiting for additional funding to complete the construction or rehabbing on the time.
• Minimizing your out-of-pocket-expense
• To reserve your cash for other deals

What are the Advantages of Gap Funding Loans?

• Transferring first loan’s interest payment into the Gap loans
• Saving the deal for you which can be otherwise slipped because of fund shortage.
• Ensuring you a good ROI (Returns on Investment).
• Letting you invest on the more deals out of your budget.
• Keeping your staff and workers busy.