By Sean Sutton Private money, a term often used for non-bank, non-agency loans, is one…
by Johns Prins, Originations Analyst
As my colleague Ian Hardcastle alluded to in a recent article regarding the benefits of Portfolio Loans for Residential Investors—the emergence of the single family residential portfolio has created a novel channel of real estate investing and as a result—an entirely new asset class that serves as a ‘hybrid’ between commercial and residential real estate assets. While there was mention of the benefits in consolidating these rental properties into one blanket loan, I would like to take a different look—and discuss the benefits of bridge loans—used by many to expand portfolios.
Acquisition Credit Lines
Bridge loans, also known to us as ‘credit lines,’ provide real estate investors access to short-term investment capital to fund the acquisition of rental properties. These products serve as a handy tool for all investors in this space—ranging from those with only a few rental properties looking to build out their portfolios, to large institutional investors looking for access to large sums of capital. Credit lines can facilitate investors looking to aggregate a portfolio of properties, those fix & flip investors who focus on strategic acquisitions in need of rehabilitation, as well as investors seeking a combination of the two.
While many investors are unaware of the benefits made available to them through access to these credit lines—the potential benefits and opportunities are seemingly endless.
Here are three benefits of using bridge loans:
1. Increased Volume of Acquisitions and Availability of Cash
Regardless of your long-term investment strategy, it can be difficult to support the volume of acquisitions and rehabilitation you seek to conduct when purchasing with cash out of pocket. You may be limited to purchasing one property at a time, five, ten—what have you—but in most cases, investors find themselves cash flow constricted. Utilizing a credit line can help make your dollar go further and free up the cash necessary to fund the acquisition and potentially rehabilitation of up to 5x the amount of properties by offering investors the ability to fund a substantial portion of the acquisition costs for newly acquired assets.
2. Flexibility and Adaptability
One common misconception of real estate investors surrounding bridge financing is the fear of employing ‘short-term financing’—primarily due to interest rates higher than long-term financing and relatively short prepayment windows—and while the latter may be true, these bridge loans offer a benefit unlike that of most loan products—flexibility. With this unique financing alternative, investors aren’t committed to long-term holds or imminent sale of the assets they acquire. Conversely, investors can approach each asset individually and derive the optimal exit strategy—one that fits their specific budget and needs. Credit lines offer investors the ability to change and be adaptable based upon their vision into the market as well as the inevitable forces of their macro-environment.
3. Opportunity and Timing
Picture this for a moment—Let’s say you’re a real estate investor that comes across a once-in-a-lifetime opportunity to purchase a rental property or pool of rental properties—you shop around for financing but to your disappointment, you find, that even if you could find a lender for the specific properties—the opportunity will have come and gone by the time the lender has an opportunity to conduct the diligence necessary to fund the transaction. That is one of the key issues our Credit Lines were designed to address. With access to bridge financing, you can rest easy knowing that you will never have to feel like you missed out on opportunities like these. Our existing credit line borrowers are typically funded in days, not weeks. This immediate access to capital—both the funds to finance the purchase(s) as well as a team capable of facilitating the quick and easy transaction—can ensure that an investor can seize on the unique opportunities that arise.
Obviously—these three benefits noted above are only the beginning of a laundry list of benefits and opportunities that could become available to real estate investors by utilizing bridge loans. Whether you have a few rentals and are looking for a product to grow and expand—or are a seasoned, institutional investor looking for further access to equity at a marginally low cost of capital—credit lines present a breadth of opportunities that can facilitate tremendous success in the residential investment space.
CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how Corevest can help grow your rental and rehab business, please call John Prins at 212.230.3341 or email firstname.lastname@example.org.