Not every deal fits into a traditional loan. A bridge loan is a short-term real estate loan designed to “bridge” the gap between acquisition and long-term financing or sale. Investors use bridge loans to close quickly, reposition properties, or refinance existing debt.
When a bridge loan makes sense
Bridge loans are commonly used for transitional properties that may have vacancy, below-market rents, incomplete lease-up, or other circumstances that make traditional bank financing difficult. Typical uses include:
- Purchase properties quickly
- Refinance maturing or high-cost debt
- Stabilize underperforming assets
- Fund value-add or repositioning projects
- Bridge the gap before a sale or long-term refinance
What the lender looks at
These loans are typically based on the value and potential of the property rather than strict traditional lending requirements. Unlike many conventional and long-term rental loans, bridge financing can be structured around the asset’s value, current condition, business plan, borrower experience, and path to stabilization rather than relying solely on the property’s current DSCR.
Plan the exit from day one
A clear exit strategy is an important part of underwriting. Common exits include refinancing into permanent financing after stabilization, selling the property, completing a lease-up, executing a repositioning strategy, or completing a planned sale or recapitalization.
Bridge financing can also be used to pay off maturing debt and provide additional time to stabilize, lease up, sell, or refinance the property into permanent financing. Depending on the property, leverage, and overall transaction, cash-out may be available.