When to Use Short Term Bridge Financing
Category : Blogs
Short Term Bridge Financing
First off, lets define our terms. Short term bridge financing has a one to three year term followed by a balloon payment. Given this criteria, time is of the essence. You can’t afford (no pun intended) to be indecisive. In acquiring short term bridge financing, you’ve traded equity for liquidity on a short-term basis. You want to use the liquidity to increase the value of the asset more than the cost of the liquidity.
A common misconception of inexperienced investors is the assumption that an acquisition of 30% less than estimated market value generates an immediate net gain. However, in actuality the cost to arrive at this estimated market value can easily exceed 30%, if you fail to properly assess the cost of the rehab. That is why I can’t impress upon you enough, how important it is to do your due diligence/homework (i.e. rehab. cost, sale or rental income, carrying cost, probability of refinance on additional short term or long term basis, etc.)
Trading equity for short term liquidity can greatly increase your net worth. Use the money soundly, and realize time is of the essence.
Food for Thought
Nathaniel S. Fulford
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