What is a Bridge Loan in Commercial Real Estate?
A bridge loan is a short-term loan used in real estate transactions that bridge the gap between the financing of a property and its eventual sale. Bridge loans are typically used to finance the purchase of a property that will be sold relatively quickly, within one to two years.
For example, suppose you find an investment property that you would like to purchase for $200,000, but you do not have the $50,000 down payment that is required. You could apply for a bridge loan for $50,000, which would allow you to purchase the property immediately. Once you have sold the property (hopefully for a profit), you would then use the proceeds from the sale to pay off the bridge loan.
Bridge loans are typically issued by private lenders, such as banks or hard money lenders. They are often used by investors who are flipping properties, as they provide a way to finance the purchase of a property without having to wait for the sale of another property. Bridge loans can be an expensive form of financing, as they typically have high-interest rates and fees. However, they can be a useful tool for investors who are looking to quickly purchase and sell investment properties.