Bridge Loans for Investors: Closing When the Deal Can't Wait
A bridge loan buys you speed and flexibility for a few months. Here's when it makes sense, what it costs and why the exit plan matters most.
Short answer
A bridge loan is short-term financing, often 6 to 24 months and interest-only, used to buy or reposition a property quickly before moving to long-term debt or selling. It usually costs more than a long-term loan, so it works best when speed or flexibility earns more than the extra cost, and when the exit is clear from day one.
Key points
- Short term, usually interest-only.
- Costs more than long-term debt.
- Plan the exit before you close.
When investors use a bridge loan
- Speed: closing before a long-term loan could, to win the deal.
- Condition: buying a property that won't qualify for long-term financing yet.
- Timing: buying the next property before selling or refinancing the last one.
- Repositioning: leasing up or renovating before a refinance.
What it costs
Bridge loans usually carry higher rates and points than long-term debt. Do the math in dollars for the time you'll actually hold the loan.
Deal sheet: $500,000 bridge loan held six months, illustrative
| Amount | |
|---|---|
| Interest, 10% for six months | $25,000 |
| Points, 2% | $10,000 |
| Cost of the bridge | $35,000 |
If closing fast or repositioning the property earns more than that, the bridge pays for itself.
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Plan the exit first
- Refinance into a DSCR loan once the property is stabilized; see from flip to rental.
- Sell, with realistic timing and selling costs.
- Extend, but know the cost and conditions before you need to; see refinancing out of hard money.
Frequently asked questions
How long is a bridge loan?
Investor bridge loans commonly run 6 to 24 months, often with extension options for a fee.
Are bridge loans interest-only?
Most are. You pay interest during the term and repay the principal when you sell or refinance.
When is a bridge loan worth the cost?
When speed, flexibility or the chance to reposition the property earns more than the extra interest and fees over the time you hold the loan.
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