Ever been in a tight spot where you are waiting for money to come in to invest in something else? You do not want the deal to fall through, but the seller is threatening to go with a more committed buyer. What can I do? The answer is in bridging loans.
To describe it shortly, bridging loans are loans I take to secure a purchase or prevent a fall through in money circumstances, as I wait to get paid from another source. This source should be reliable; else, the bank wouldn’t offer a bridging loan. But what do I benefit from such a trade-off?
There are times when one is waiting for a payment from another property to fund the current purchase in many property transactions. I could find myself in a position where I need extra financial top-ups to secure my transactions; else, the opportunity goes to another.
In this case, I could take a bridging loan, use it to purchase the property, and then use the proceeds from the other property to pay off the loan. In short, the loan acts as an interim fund to ensure the sales chain isn’t broken.
Flipping houses can be a very profitable business, especially when I know my way around the real estate market. The business runs by me buying a place at a low price, flipping it (making significant renovations), and selling it at a more profitable price. Sadly, I might not always have the capital for such renovations, especially when I have already used up my savings to buy off the property.
To solve my query, I’ll take a bridging loan for the renovations and pay it from the money I receive after selling the property. However, I have to ensure that the loan’s interest is not taking up all of my profit for this movie to be worth it.
I do not have to take a bridging loan only when I am sure of which property I want to buy. I can use the potentiality of securing the loan to scout for more properties within my budget. Some people are willing to sell their houses for as little as 20% off, as long as the buyer can pay upfront. This becomes a significant win thanks to bridging loans.
When I am moving houses, I try to spend as little as I can on the change. It already costs a fortune to hire a professional mover and wouldn’t love the idea of moving twice. Bridging loans keep such problems from occurring. It is important that you take into account what happens when you sell and move homes so you are prepared financially, looking into articles such as ‘4 Questions to Ask Before Selling a Home‘ as well as similar ones that can add to your knowledge, will help you down the road and provide you with what you need.
By securing a property using the loan, I do not have to put my belongings into storage as I stage my house for sale. Instead, I can easily move into the new property. Also, I do not have to rent a house temporarily as this could be another expense.
Trying to sell property in a rush only makes us make poor deals. Instead of rushing to sell the property to the first bidder, I could hold off for a while, take a bridging loan to move out, and pay it when I finally get someone with the most reasonable offer.
Bridging loans are a great way to keep transactions on the right track and even save businesses from short-term cash flow issues. However, I wouldn’t go for it if it would mean financial suicide, primarily where interests are concerned as they are often relatively high. Else, the idea is a lifesaver, and its option can help me think of the next move without entirely worrying about where the money will come from.