How to Use Bridge Loans for Multifamily Properties

David Cohn
Jul 14, 2021
Multifamily Properties

Multifamily properties are one of the best types of commercial real estate investments. It provides the potential to profit not just from one tenant but a number of different tenants every month, making its income stream more reliable.

Another great thing about multifamily properties is that they are usually easier to finance than other commercial real estate types.

So if you spot a multifamily building you wish to invest in, consider taking out a bridge loan to quickly close the deal.

Bridge loan 101

Seasoned commercial property investors widely use bridge loans to snap up time-sensitive multifamily deals.

This type of financing can be acquired in a matter of days, so it’s possible to get the cash you need to purchase a property right away before another investor beats you to it.

If a bank turns you down, a bridge loan might save the day. That’s because, unlike traditional loans, bridge loans don’t involve extensive credit checks.

Instead, bridge lenders focus on the value of the multifamily property—not the borrower’s credit score. Some commercial real estate investors don’t qualify for traditional mortgages because of strict lender requirements.

For example, many banks want to see that the multifamily building is already making a regular income before lending money. They also want to make sure that the building is a suitable living environment.

So a bank is likely to reject your loan application if you’re buying a distressed property to renovate it and make it profitable.

Your best choice will likely be a bridge loan. You can use it as your working capital to start your project, and once your building meets the bank’s requirements, you can then refinance to a traditional loan.

Bridge loan terms

Need money fast? You can receive your bridge loan funding in as little as a few days—usually no more than two weeks. This is extremely quick compared to a traditional loan that takes a few months to approve and fund.

In terms of interest rates, bridge loans are on the expensive side. Despite this, many commercial real estate investors use bridge loans as a part of their funding mix.

That’s because the accessibility of this solution more than makes up for its high-interest rates.

Here are the general bridge loan terms available from commercial lenders in 2021:

  • Loanable amount: Starts at $100,000 and goes to millions of dollars
  • Term: 6 to 24 months (with extension options available)
  • Amortization: Interest only
  • Interest rates: Starts at 7.5%
  • Maximum loan to value ratio: Usually up to 75% of LTC, capped at 70% of the stabilized or completed value

The loan amount in a bridge loan is determined by the total cost of the project or the completed value of the property—not necessarily its current income or it’s as it is value.

Important note

Keep in mind that there are two types of bridge loans: Recourse and nonrecourse. It’s important to clarify what type of loan a lender provides.

If you default on the payments on a recourse loan, the lender has the right to seize assets outside of the multifamily building.

You also need to check if you will be required to pay fees when you pay off the bridge loan later on once you get long-term financing. Prepayment fees vary depending on the lender.

Uses of bridge loans in multifamily investments

The most common use of bridge loans is to quickly buy an apartment building when an all-cash transaction is not an option.

Some investors also use bridge loans to rehabilitate and stabilize a multifamily property prior to applying for a conventional mortgage.

The money from the bridge loan can be used to keep the building financed while upgrades are finished, and the units are leased out.

You can also use a bridge loan to roll a mortgage on a new multifamily property while waiting for your current commercial property to sell. It gives you the cash you need to act on a time-sensitive deal right away. Once your other property sells, you can pay off the bridge loan.

Finally, bridge loans can be used to finish under-construction projects that have exhausted their financing.

Get bridge loan financing for your multifamily property today

Are you interested in buying a multifamily building and fixing it up to make it more profitable? Then, a bridge loan may be the best financing solution for your case.

Capital Investors Direct is one of the most trusted commercial property bridge lenders in the country today.

Our approach to lending is fast and flexible, making our solutions perfect for investors who need reasonable short-term financing for urgent deals. It’s possible to close in as short as four days.

We offer bridge loans for repositioning, rehabilitation, and value-add purposes. Our lending criteria are flexible, and approvals are granted on the same day.

We are able to finance projects from $100,000 to $5 million. Terms can either be 12, 18, or 24 months and interest rates are as low as 7.5%.

Rejected by the bank because you don’t meet their stringent lending criteria? It doesn’t matter.

We’ll take a look at your project and assess it using our asset-focused approach, so don’t hesitate to send in your application.

Our bridge loans provide interim financing solutions for investors who want to make improvements to the property in order to obtain permanent financing.

Talk to our commercial real estate financing experts today to determine if a bridge loan is a right solution for your multifamily project.