A Case for Bridge Loans
Case Study:
A client of mine, a single family residence investor, was looking to buy an ideal property; complete, with renter in place. Although the market value of the property was about $207K, the client had an option to purchase for $143K. The problem was that option was about to expire! The Client had to close quickly or lose the option. Although a bank would have been willing to do the deal, their approval process would have taken too long. The solution? A bridge loan, a short term lending vehicle (usually 12 to 24 months) designed to enable investors to close gaps. Below were the benefits to the client:
Client Saved on the Purchase:
Without the Bridge Loan the option to purchase would have expired. Had the option expired the client would have had to buy at the higher price or walk away from the deal.
Client Now Has Flexibility:
The client was able to buy the property at the reduced price and now has the option to either refinance through a permanent lender or resell the property at a profit.
Interest Only Payments:
The terms of the loan were for 18 months with interest only payments. This is perfect for the client as his total loan payment is relatively low, thus maximizing his cash flow.
Bottom Line & Final Thoughts:
This client, though he could have qualified for a conventional bank loan, was able to utilize an alternative financing option, which he was previously unaware of, that saved his deal and saved him money in the long run. Some situations just need real time fast solutions. getting connected to experts in important. This recent event inspired me to set up I have recently set up the COMMERCIAL REAL ESTATE MARKET PLACE on LinkedIn for anyone else seeking real time solutions to real time problems. I also recommend the many forums here on BiggerPockets.com its a great place to find good tips.