A multifamily bridge loan is financing obtained by commercial property owners to cover when they receive the loan and the moment they utilize the property as initially planned. Commercial real estate and multifamily bridge loans are issued for repayment within three months to three years, but most land at 12-24 months.
Uses of Bridge Loans
Multifamily bridge loans are mostly used to quickly buy a property when there is no option for cash. The main advantage of multifamily bridge financing is that they close quickly and are issued based on the property’s value. Other loan types often rely on the income generated by the property and some heavy analysis. Due to the lack of analysis, multifamily bridge loans close much quicker than conventional loans. But, this comes at a cost. Multifamily bridge loans lenders charge high-interest rates for the loan, which can be as high as triple or quadruple the market rate for traditional financing.
You could also approach multifamily bridge lenders for a loan to rehabilitate or stabilize a property as you wait to obtain conventional financing. The multifamily bridge financing obtained keeps the property on schedule while completing necessary upgrades and then leasing the property. This also applies to other types of properties such as office and retail.
Advantages of Bridge Loans
- Speed of closing: You can obtain multifamily bridge financing within a few weeks.
- Underwrite the property: A hard money lender underwrites properties instead of individual borrowers. The loan is evaluated based on the eventual sale price of the property.
- Interest-only payments: Sometimes, multifamily bridge loans lenders offer investors a specific period where they only pay the loan interest, not the principal. This provides an investor with maximum flexibility and cash flow during uncertain times.
Disadvantages of Bridge Loans
- Variance in interest rate: When you obtain a loan from a hard money lender, you receive a fixed interest rate; however, you don’t lock in a longstanding interest rate.
- Bridge loans are short-term as they usually last for a period not exceeding 24 months.
Bridge loans are essential in various commercial real estate areas, such as multifamily. Property owners sometimes require a temporary loan to keep going while waiting for a mortgage. A hard money lender helps many investors avoid foreclosure through bridge loans. If you want to know more about bridge loans, i Fund Cities is here to help. Visit our website or talk to any of our loan officers.