Investing in multi-family residential properties is one way to make good money in real estate. The multi-family strategy is rooted in generating monthly income while simultaneously building equity. A savvy investor can make every penny go further by utilizing a smart financing solution. Enter the bridge loan from a private lender.
Private bridge loans are made by lenders like Actium Lending out of Salt Lake City, Utah. Actium underwrites bridge loans in Utah, Colorado, and Idaho. A fair number of their clients invest in multi-family properties.
It Starts With Rapid Acquisition
Successful investing in multi-family begins with rapid acquisition. Serious investors looking to make good money cannot have their resources tied up for months on end while they wait for banks to get things together. They need to be able to move much more quickly. Private bridge loans make it possible.
A private lender can typically arrange a bridge loan in a matter of days. Actium Lending has been known to move as quickly as one business day, though 3-5 days are more typical. Regardless, it is not the 90 days traditional lenders typically need to approve and fund.
Stabilization Follows Acquisition
A bridge loan is a short-term loan with a term of 6-12 months. Some lenders will go as long as 24 months, but that would be unusual for a multi-family residential unit. During the bridge loans term, an investor’s top priority is stabilization.
Stabilizing the property is about maximizing occupancy and making any operational changes necessary to streamline management. A stable property is easier to fund through traditional financing. So during the term, the investor is also arranging a traditional loan.
Rental income from the stabilized property covers expenses and generates a decent profit the investor can set aside for the next acquisition. Meanwhile, the property’s equity increases as its value goes up.
Cashing Out and Moving On
There is one more step in the process: cashing out and moving on. Cashing out is not necessarily selling the property, although some investors might choose to do so. Rather, it is turning the property’s equity into cash that can be combined with a new bridge loan to facilitate an entirely new acquisition.
Every new acquisition and stabilization generates more rental income. Every property in the investor’s portfolio contributes to increased equity. With several properties in a portfolio, an investor can build a self-sustaining model in which every property ultimately funds a future acquisition.
Bridge loans are the key to getting the ball rolling. They open the door to highly profitable properties banks are reluctant to fund during the acquisition stage. And because bridge loans can be arranged so quickly, investors can move on deals as quickly as they come along.
Investors Love Private Bridge Loans
Understanding how private lending can fuel a multi-family investment strategy makes clear why bridge loans are so attractive. By definition, a bridge loan is intended as a financial bridge that meets an immediate financial need based on the expectation of a more permanent financial situation in the future.
The same strategy that helped residential home buyers climb the property ladder in the 1990s and early 2000s is now being leveraged by property investors looking to make good money in multi-family rentals. In short, the love bridge loans.
If I were jumping into the multi-family market, private bridge loans would not even be a question. They would be my first source of funding for acquisition. Bridge loans from private lenders are arranged quickly, can be easily customized, have minimal documentation requirements, and are asset-based. Why would any investor fund acquisitions with traditional loans?
