Rehabbers working on fix and flips in New York have quite a few financing options. One of the best options is a bridge loan. This article covers bridge loans for rehabbers, including what it is, its advantages and disadvantages, and how to get started. It also touches on real estate investment opportunities.
Real Estate Investment Opportunities
In its year-end report, ATTOM, the property database company, announced that home sellers in the USA realized a profit of $94,092 on a typical sale in 2021. This is up an astounding 45% from 2020 and 71% from 2019. That profit level represented a 45.3% return on investment, the largest profit margin seen since 2008.
Fix and Flip Opportunities in New York
Given the record profits and ROI, you can tell that real estate is booming across the nation, which means there are opportunities across the country. That includes New York.
In our recent article on the Top 10 Fix and Flip Markets, New York didn’t make it into the ranking based on days to flip or home flipping rates. Even so, there are quite a few fix and flip opportunities as people continue to look for suburban homes with the increasing trend of working from home.
For example, as recently as 2019, ATTOM’s data reported that 35% of all house sales in Queens County were fix and flip projects.
What Is a Bridge Loan?
Bridge loans are short-term financing, usually ranging from six to 12 months and often into 18 or 24 months. They are used to bridge one form of financing to another over the short term. That includes securing funding for the time needed to fix and then flip a real estate investment property.
There is also a hard money bridge loan. This is a short-term loan with real estate used as collateral. This approach allows those with lower credit ratings to obtain the financing they need for a rehab project.
Bridge Loan Advantages
There are quite a few advantages to bridge loans that are particularly suited to rehabbers with fix and flip properties. Here’s the shortlist.
- Qualifying can happen quickly, including same-day approval.
- Closing can follow in as short a timeframe as a few days.
- Cash arrives for your project quickly, allowing an immediate start.
- Loan terms are typically six, 12, 18, or 24 months.
- Payments can be interest-only during the period of the loan.
Bridge Loan Disadvantages
Of course, along with the advantages come a few disadvantages.
- Higher interest rates than long-term loans, which is to be expected.
- Closing costs are usually a few thousand dollars, plus up to two percent of the loan’s original value. There are also origination and other fees.
- Lower loan maximums, typically ranging from $100,000 minimum to $5 million maximum.
How to Get Started with a Bridge Loan
Bridge loans have several uses in addition to rehab projects. They can cover the gap between a new home construction loan and a mortgage. They can also bridge the gap between placing a down payment on a new home while waiting for the old house to be sold. They can further cover operating expenses while working on long-term financing.
In looking at bridge loans, you’ll need to find a lender that not only meets your needs but, in many respects, will become a business partner. That includes not only this first loan but those that follow.
It’s also wise to develop a business plan that outlines your plans and documents your past projects. This will demonstrate that you have a serious and successful business. As with any loan, you’ll also be asked about the down payment, credit score, cash flow, and collateral. So it’s wise to start pulling all this together as you get ready to launch your New York rehabbing project.
For further background, we suggest our Guide to Private Real Estate Loans.
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