Bridge Loans for RE Investors
A bridge loan is short-term financing that "bridges" the gap between two transactions. In real estate investing, bridge loans are used when you need to acquire a new property before selling an existing one, when you need to close quickly and will refinance into permanent financing later, or when a property needs renovation before it qualifies for conventional lending. Bridge loans are fast, flexible, and more expensive than permanent financing, making them ideal for transitional situations where speed and access matter more than rate.
When investors use bridge loans
Acquisition before sale
You found a great deal but have not yet sold your current flip. The bridge loan funds the new acquisition using your existing property (or the new property) as collateral. When the first property sells, you repay the bridge loan.
Quick close on competitive deals
A deal requires closing in 10 days. Conventional loans take 30-45 days. A bridge loan gets you to the closing table fast, and you refinance into a conventional loan after closing.
Value-add before refinance (BRRRR)
You purchase a property that needs renovation. Banks will not lend on the current condition, but will finance the improved property. A bridge loan funds the purchase and rehab. After renovation, you refinance into a permanent loan at the improved value.
Portfolio expansion
You want to buy multiple properties simultaneously but do not have enough capital for conventional down payments on all of them. Bridge loans provide temporary leverage while you arrange permanent financing.
Bridge loan terms
- Term: 6-36 months (12 months is most common)
- Interest rate: 8-14% (higher than conventional, lower than hard money in many cases)
- Payment structure: Interest-only monthly payments (no principal reduction until payoff)
- LTV: 65-80% of the property value (current value, not ARV)
- Origination fee: 1-3 points
- Prepayment: Most bridge loans have no prepayment penalty, allowing early payoff without additional cost
- Closing speed: 7-21 days depending on the lender and property complexity
Bridge loans vs hard money
| Feature | Bridge Loan | Hard Money |
|---|---|---|
| Typical use | Transitional financing, portfolio leverage | Fix-and-flip, rehab projects |
| LTV basis | Current value | Often ARV-based |
| Borrower focus | Moderate (credit and experience matter more) | Asset-focused (property value matters most) |
| Term | 6-36 months | 6-18 months |
| Rate | 8-12% | 10-14% |
| Rehab funding | Sometimes included | Usually included with draw schedule |
Finding bridge lenders
- Regional banks and credit unions: Some community banks offer bridge loan products for established customers
- Private lending companies: Companies like Lima One Capital, Kiavi, and CoreVest specialize in investor bridge loans
- Private individuals: Private lenders who provide bridge capital at negotiated terms
- Mortgage brokers: Commercial mortgage brokers have access to bridge lending programs from multiple sources
The cost of bridge loans
Bridge loans are expensive relative to permanent financing, but the cost is justified when the alternative is missing a deal. Calculate the total cost before committing:
Bridge Loan Cost Example
Loan amount: $200,000
Rate: 10% interest-only
Term: 8 months
Origination: 2 points = $4,000
Monthly interest: $1,667
Total interest for 8 months: $13,333
Total cost: $4,000 + $13,333 = $17,333
This $17,333 cost must be justified by the deal's profit margin. If the deal produces $50K in profit, the bridge loan cost is acceptable. If the deal produces $20K, the bridge loan eats most of your margin.
How this connects to wholesaling
Understanding bridge loans helps you serve your buyer list better. Many of your buyers use bridge financing to fund purchases. Including bridge loan scenarios in your marketing package (estimated monthly payment, total cost, and cash-on-cash return with bridge financing) makes your deals easier for buyers to evaluate and increases your response rate.
Related articles
- Hard Money vs Private Money
- DSCR Loans: A Rental Investor's Guide
- Transactional Funding Guide
- BRRRR Analysis