Are you struggling to stabilize your multi-family property because your bridge loan is not enough? Don't worry, you're not alone. Many investors face this challenge, but there is a solution: bridge to bridge financing.
In this article, we will discuss the strategy of bridge to bridge financing, how it can help you get more cash to complete your capex, and what to consider before choosing this option.
What is Bridge to Bridge Financing?
Bridge to bridge financing is a strategy where you take out another bridge loan to pay off your existing bridge loan. This type of financing is suitable for investors who have acquired a property and have already started renovations, but the project is taking longer than expected, and they need more cash to complete the renovation and stabilization process.
The biggest challenge with bridge to bridge financing is convincing lenders that you will be able to repay the loan, despite not achieving your goals in the first bridge loan. Lenders are more cautious when considering bridge to bridge loans because they see it as a sign that the borrower is not performing as expected.
How to Qualify for Bridge to Bridge Financing?
To qualify for bridge to bridge financing, you need to have a clear plan on how you will use the additional funds to complete the renovation and stabilization process. You also need to demonstrate your ability to repay the loan, either through cash flow or refinancing.
In the case of Sims, the investor who acquired a 24-unit multifamily property with bridge debt, the property is 80% occupied, and they need $185,000 to complete their capex. The as-is value of the property is $2.6 million, and the stabilized value will be between $2.95 to $3.2 million.
How Can Bridge to Bridge Financing Help Sims?
If Sims decides to go for bridge to bridge financing, they can borrow up to 70% of the stabilized value of the property, which is approximately $2.1 million. This will be enough to pay off the existing bridge loan of $1.5 million and provide the additional $185,000 needed for the renovation.
Bridge to bridge financing will enable Sims to complete the renovation process, achieve stabilization, and be in a better position to refinance out of the bridge loan in the future.
Conclusion
Bridge to bridge financing can be a useful strategy for investors who need more cash to stabilize their property. However, it is essential to have a clear plan, demonstrate your ability to repay the loan, and work with a lender who understands your situation.
If you're considering bridge to bridge financing, consult with a professional lender who can guide you through the process and help you make an informed decision.
Don't let your bridge loan limit your ability to stabilize your property. With bridge to bridge financing, you can get the cash you need to complete your renovation and achieve your investment goals.