September 16, 2015
Recently, I have written two blogs on the topic, “What is Hard Money Commercial Lending?” In this blog, I’m writing Part 3 on the topic. It has to do with 2 very important ways to soften risk when you are acquiring a bridge loan.
In the meanwhile, why do a bridge loan with us? Visit our bridge loans page and you will be able to see some competitive bridge loan products. They may surprise you – rates and terms to help you save money. And importantly, check with us to see if we can pre-qualify you for a bridge loan.
First, before we get to the topic today of softening risk, we want to stress that bridge loans tend to have quite a bit more risk than conventional loans do. We do not recommend you get a bridge loan unless you have a good amount of experience concerning commercial loans, or unless you partner with or receive mentoring from an investor who has experience investing in commercial hard money loans.
Now, in regards to softening the risk, there are two areas having to do with commercial hard money loans that can be big risk factors that we will address.
1. Under-estimating the time needed for the bridge loan project. Some investors, especially if they are inexperienced in doing hard money loans, will under-estimate the amount of time it will take to accomplish the bridge loan prior to the start of the permanent loan.
For example, an investor might think it will take a year to increase the occupancy of an apartment complex from 50% to 90%. The investor gets a bridge loan that expires in a year and converts to a permanent loan—but it actually takes 15 months, and the mistake of underestimating the time needed costs the investor a financial penalty she cannot afford. It’s much better to give yourself extra time – for the above scenario, an extra 6 months would have made more sense.
2. Another area that has caused many commercial investors to lose money in bridge lending is the under-estimation of cost for a commercial project. For example, an investor gets a bridge loan for the purpose of improving the property. He estimates that the cost of the project will be 1.2 million dollars. But, when the project is complete, the cost is 1.9 million dollars. The bridge loan was done for the purpose of saving money. In this case, the investor lost money.
Costing and estimating is an art. If you are not experienced in it, consult with or partner with someone who is. Allow for a cushion. Unforeseen expenses should be expensed in.
Contact us to see if you qualify for our best multifamily, commercial, or bridge loan rates and terms. Keep in mind that one of our specialties is commercial bridge lending. Also, contact us if you would like to discuss your particular commercial lending needs, or if you have questions. Call or text 214-695-7310, or send an email to firstname.lastname@example.org
To discover more about our loan products as well as rates and terms, see our loan programs page.
Bruce Painter, Director of Marketing, Business Loan Store