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erikv2

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Reply with quote  #1 

What are the ways that r.e. investors use 'bridge loans"?

What interest rates to they carry?

thanks for the enlightenment.  stay successful

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JohnnyCash

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Reply with quote  #2 
Quote:
Originally Posted by erikv2

What are the ways that r.e. investors use 'bridge loans"?

A Bridge Loan takes out the Construction Lender until a permanent Lender is found. Construction Loans are expensive but the Construction Lender does inspections on the project as it progresses and when complete.That makes it easier to get reasonable Bridge Loan. Construction Lenders are relatively short term, up to 18 months maybe a little longer depending on the project. They are not 5 to 10 year lenders. Construction loans are more expensive because of all the risks that are encountered during construction, including the risk of non-completion.

The Bridge Loan typically has lower rates since the project is complete and market value can be more accurately determined and be expected to last for awhile. Things that are not true during Construction. In some cases a Bridge Loan can convert to a Permanent Loan. In that case the rate will typically drop and incremental sales will be available.

A Permanent Loan will, in the case of a home builder, allow incremental repayment of the total loan value as the homes are sold. This is like a Blanket Loan. The Permanent Loan usually has the lowest rate of all three given that the market for new homes is good when the Bridge Loan is paid off.

What interest rates to they carry?

It's been awhile for me, but years ago the Construction Loans were 8% to 12% depending on time, amount, contractor history, estimated After Construction Value... I doubt that's true today, rates are much lower.

Bridge Loans were usually a few points lower and Permanent Loans a few points lower than Bridge loans.

I haven't looked at any Construction loans recently, but just call one of the larger banks. The rates have to be less than my examples. However Banks may be more reluctant to do Construction loans at this time.

If you project is very large or unique (meaning hard to appraise and perhaps sell) you may pay more and have to go to a specialized Construction Lender.

Beware that the Construction Lender will require a Completion Bond that will increase the cost of the loan.

This kind of lending is interesting because it shows how the different risks in each category cause a significant reduction in loan expense and the need for different lender expertise in each category.


thanks for the enlightenment.  stay successful

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erikv2

Senior Member
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Posts: 208
Reply with quote  #3 
Thank U and God bless the kindness
of teaching me about real estate lending.
Seems you reached pretty deep into
memory recesses to create the Post.

Follw up Query - Wonder what a Trump regime
will mean related to credit market expansion, and
more Bridge loans, or , rather, more
tight credit markets with tight
credit and lending standards?

Comment
I appreciate your Quote at your By line
it makes me chuckle!

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JohnnyCash

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Reply with quote  #4 
Quote:
Originally Posted by erikv2
Thank U and God bless the kindness
of teaching me about real estate lending.
Seems you reached pretty deep into
memory recesses to create the Post.

Follw up Query - Wonder what a Trump regime
will mean related to credit market expansion,

Being a real estate developer on a grand scale Mr. Trump will be realistic about any effects he can have on credit market expansion. Certainly he could encourage Congress to pass a bill with $Billions in cheap RE development money, not a good idea in my opinion. However I think he understands this is how the Government creates chaos in the Real Estate market.

IF the market demands more development money then lenders will provide it. The lenders will be careful to assess the risk of a loan being paid off much better than the Government. That is the step the Government always screws-up.

So is this a time for expansion in big real estate projects? If we look at China we see the answer is clearly "No". The Chinese still don't seem to get it.

Today is a strange time. It is a good time to borrow or refinance, but not to build large US projects except in certain parts of California and perhaps Florida. Our environment today is one of economic contraction, here and the rest of the world, in other words Deflation. During Deflation real estate prices can enter a falling period while a large project is under construction.

Of course it all depends on how deep your pockets are. Recall even Mr. Trump has faced bankruptcy more than once on his large projects when the future didn't go as expected.

more Bridge loans, or , rather, more
tight credit markets with tight
credit and lending standards?

Yes certainly in construction lending. Lots of shopping malls across the country are half vacant. High density housing outside of the city proper still seems popular in San Diego  A lot of those projects have special Gov't money to put people on as small a carbon footprint as possible. --- though I'm not sure if that guarantees profitability. As I recall there are still a lot of very high rise condo vacancies downtown.

IF a developer could get land reasonably close to San Diego city (up to maybe 25 miles) and that would allow around 25 to 50 SFRs then perhaps lenders would consider the project.

You should read my post on the sudden rise in national Foreclosures, so far California is not infected, but it is a warning.

Comment
I appreciate your Quote at your By line
it makes me chuckle!

It's a very old quote, a reminder that certain parts of the human condition remain constant and that to ignore them can be disastrous. In case you hadn't noticed everything has a "cash" emphasis in most of my posts. Never let the politicians eliminate hard cash, never, never go all digital currency.

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"Nothing knits man to man like the frequent passage, from hand to hand, of cash." Walter Richard Sickert
LashellMilton

Junior Member
Registered:
Posts: 21
Reply with quote  #5 
I find this thread helpful. My financial adviser helps me with things, I am not so familiar with but reading the discussions, gives me a lot of input as well.
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