Construction versus Bridge Loan
When would you use a construction loan to perm versus a bridge loan?
I would appreciate if anyone can offer their 2 cents on when to use each scenario. If you purchase a value add property that is vacant, how would you finance this and how would the banks look at it? Thanks.
What are you needing a construction loan or bridge loan for? If for a bridge loan, now much do you already have such that you simply need that "bridge" loan to get you over the troubled waters, so to speak?
Construction loans, as with bridge loans, can be pretty sticky. Miss one of the minute requirements in the loan agreement and you lose it all. If all you need is a bridge loan, how much are you talking?
Do you not have PE that would be willing to back your venture?
Just curious. It sounds like more needs to be fleshed out.
Well, it's sort of a self-explanatory question. A construction loan is for building the improvement to the physical plant of a site. Typically it involves a whole extra set of guarantees and lender protections (e.g. a completion guarantee, vetting of third parties such as the general contractor, etc).
A bridge loan can be for a lot of things. Perhaps you want additional proceeds on top of a low-leverage land loan to get you through an entitlement process. Maybe you have relatively more modest means and want additional leverage on a permanent financing to help fund improvements. I don't see a substantive difference between a bridge loan and generic mezz financing. Maybe term?
I think a major difference is that bridge lenders tend to lend at higher rates, and be more accepting of default risk (read: can be predatory lenders). Your average construction lender wants no part of taking the keys back to a half-finished development project, for a whole host of reasons. Whereas a lot of bridge lenders, at least in the sense it seems you're asking about, are certainly willing to either finish a project, or accept the risk of finding a development partner willing to do it for them.
Thanks for everyone’s contribution above.
I’ll give an example scenario: Suppose I want to acquire an 8 unit building. It is being bought subject to vacancy and I’ll be doing 200k of renovation work. Total costs for acquisition(800k) + reno is 1m. What kind of loan would be best in this case? Is the 200k a construction loan or a bridge financing above the acquisition loan? A conventional bank will not finance a vacant building is what stumbles me. How would this get lending?
A little confused on what is considered a constr. loan opposed to getting bridge financing.
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