Bridge Loans: 100% Financing on Investment Property?

Bridge loans, also known as hard money loans, are short-term loans that bridge the gap between the purchase of a property and the exit strategy. They can provide 100% financing for investment properties and can include funds for renovations. These loans are backed by hard assets such as real estate and have a shorter repayment period. Bridge loans allow investors to leverage their renovation costs and can be obtained with a combination of a bridge loan and a HELOC, potentially requiring no money out of pocket. Refinancing out of a bridge loan requires a clear exit strategy and working with a lender who can provide guidance on long-term financing options. It is important to seek advice from professionals to determine accurate property values and be prepared for unexpected expenses during renovations. Using HELOCs for down payments on new properties can be challenging to make profitable.

The Overlooked Bridge Loan

Bridge loans are a type of loan product that can provide 100% financing for investment properties. They are often overlooked but can be beneficial for real estate investors.

Bridge Loans Explained

Bridge loans, also known as hard money loans, are short-term loans that bridge the gap between the purchase of a property and the exit strategy. They are typically higher interest loans and can include funds for renovations. These loans are temporary and often refinanced into conventional loans. Key points include:

Bridge loans are used to bridge the gap between the purchase of a property and the exit strategy.
They are typically higher interest loans and can include funds for renovations.
Originally, bridge loans referred to buying a new property before selling the old one, but now they are synonymous with short-term debt.
Bridge loans are backed by hard assets such as real estate, vehicles, or jewelry.
They have a shorter repayment period and cannot be obtained as a 30-year fixed rate mortgage.

Finance Your Purchase AND Renovation

Bridge loans, also known as hard money or fix and flip financing, are a type of loan that allows borrowers to purchase a property and borrow money for renovations. These loans are often used to buy an asset that will be converted for another purpose and later refinanced with traditional financing. Lenders typically provide a percentage of the purchase price, usually up to 80%, and a percentage of the renovation cost, ranging from 50% to 100%, depending on the borrower's experience. The total loan amount is limited based on the expected value of the property after renovations, usually around 75% of the exit value.

Key points:

Bridge loans allow investors to leverage their renovation costs up to 75% of the loan-to-value (LTV) based on the exit value.
The loan-to-cost (LTC) is different, representing the total cost of the project that is financed. In this case, the loan-to-cost is 87%, with 20% down for the purchase and 100% financing for renovations.
Bridge loans are easier to obtain compared to 203k loans and are ideal for buy, renovate, and rent (BUR) projects.
Other financing options mentioned include using cash or a HELOC.

How to Get 100% Financing

The most profound aspect of getting 100% financing is using a combination of a bridge loan and a HELOC to purchase a property without using any of one's own cash.

Key points:

Bridge loans and HELOCs are alternative forms of financing for investment properties.
A bridge loan does not require pre-existing equity, while a HELOC does.
If someone has access to a HELOC, they can use it as a down payment and get a bridge loan for the remaining amount.
This strategy allows for potentially completing a renovation with no money out of pocket.
With a bridge loan, the borrower is responsible for 15% of the purchase price and rehab costs, but this can be taken from the HELOC.
Once the project is completed, the borrower can refinance into a long-term loan and pay back the HELOC.

Refinancing Out of a Bridge Loan

Refinancing out of a bridge loan is crucial and requires a clear exit strategy. Here are the key points to consider:

Avoid lenders who only offer bridge loans with balloon payments or short repayment periods.
Work with a lender who can provide guidance on both bridge loans and long-term financing options.
Pre-approve borrowers for long-term refinancing before obtaining a bridge loan for a smooth transition.
The BRRRR strategy is similar to refinancing out of a bridge loan, involving short-term debt for property acquisition and renovation, followed by long-term financing.
Bridge loans allow investors to acquire and renovate properties without a large down payment, relying on sweat equity and cash flow to increase value.
Success lies in effectively executing the deal.

What Can Go WRONG?

Bridge loans can provide 100% financing for investment properties
It is important to seek advice from professionals to determine accurate property values
Unexpected expenses during renovations can lead to lower property appraisal values and financial shortfalls
Additional funds may be required to refinance the property in such cases
Home equity lines of credit (HELOCs) can be used to cover financial gaps during the refinancing process
Using HELOCs for down payments on new properties can be challenging to make profitable.

Work with Christian and David!

Bridge loans are discussed in this video, including their suitability for different projects. The hosts provide their contact information for inquiries and ask for feedback on the show.

The video discusses bridge loans and their suitability for different types of projects.
The hosts provide their contact information for further inquiries.
The hosts ask for feedback on the show.