What Is a Bridge Loan?
A bridge loan is a short-term loan that "bridges" the gap between two financial transactions. In real estate investing, bridge loans are most commonly used when you need to acquire a property quickly before long-term financing is in place, or when you need to hold a property temporarily during a transition period.
Think of a bridge loan as a financial tool designed for the in-between moments — the times when your deal timeline does not align perfectly with conventional lending timelines.
Common Bridge Loan Scenarios
Scenario 1: Buy Before You Sell. You find the perfect investment property but have not yet sold your current property. A bridge loan finances the new acquisition using the equity in your existing property as collateral or leverage. When the existing property sells, you pay off the bridge loan.
Scenario 2: Auction or Fast-Close Acquisitions. A property is available at a deep discount but requires closing in 7-10 days. Conventional financing cannot move that fast. A bridge loan provides the capital to close quickly. After closing, you either renovate and sell (converting the bridge into a flip) or stabilize and refinance into a DSCR or conventional loan.
Scenario 3: Stabilization Period. You have completed a renovation but need time to lease up the property before refinancing into a DSCR loan. The DSCR refinance requires an occupied property with rental income. A bridge loan extends your timeline while you find tenants.
Scenario 4: Portfolio Acquisitions. You are purchasing a portfolio of properties (multiple at once) and need short-term financing to close the bundle, with plans to refinance individual properties into long-term loans afterward.
Scenario 5: Entitlement or Rezoning. You are purchasing land or a commercial property that requires rezoning, permits, or entitlement approvals before development or sale. A bridge loan provides the holding capital during the approval process.
How Bridge Loans Work
Bridge loans share many structural features with fix and flip loans:
Term: 6-24 months (most commonly 12 months) Rate: 9-12% (varies by property type, LTV, and borrower profile) Origination: 1.5-3 points Payments: Interest-only (no principal amortization) LTV: Up to 75-80% of current property value Exit Strategy: Sale of the property, refinance into long-term financing, or sale of another asset
The key difference between a bridge loan and a fix and flip loan is that bridge loans typically do not include a rehab component. The property is being acquired as-is, and the loan covers the purchase price. If renovation is needed, a fix and flip loan with a rehab draw schedule is the more appropriate product.
Bridge Loan Costs: A Real Example
Consider an investor purchasing a stabilized rental property for $250,000 using a bridge loan, with plans to refinance into a DSCR loan within 4 months.
- - **Loan amount:** $187,500 (75% LTV)
- - **Rate:** 10.5%
- - **Origination:** 2 points = $3,750
- - **Monthly payment:** $1,641 (interest-only)
- - **Hold period:** 4 months
- - **Total interest:** $6,563
- - **Total bridge loan cost:** $10,313 ($3,750 origination + $6,563 interest)
Is $10,313 worth it? If the bridge loan enables you to acquire a property that generates $500/month in positive cash flow on a DSCR loan (after refinancing), the annual cash flow is $6,000. The bridge loan cost is recovered in under 2 years from cash flow alone — not counting appreciation, equity paydown, and tax benefits. If the alternative was losing the deal entirely, the bridge loan is clearly justified.
When Bridge Loans Make Sense
Bridge loans are a valuable tool when timing is the critical factor. Use a bridge loan when:
- - You need to close faster than conventional financing allows
- - You are transitioning between investment strategies (flip to rental, rental to sale)
- - You have a defined exit strategy within 6-12 months
- - The cost of the bridge loan is justified by the opportunity it enables
- - Conventional financing is not available for the current property condition or situation
When Bridge Loans Do Not Make Sense
Avoid bridge loans when:
- - You do not have a clear exit strategy (how will you repay the loan?)
- - The property will take longer than 12-18 months to stabilize or sell
- - The total cost of the bridge loan eliminates your profit margin
- - Long-term financing is available and speed is not a factor
Bridge Loans vs. Other Short-Term Options
Bridge vs. Fix & Flip: Use fix and flip when the property needs renovation (draws are included). Use bridge when the property is being acquired as-is.
Bridge vs. DSCR: DSCR is a long-term loan (30 years). Bridge is short-term (6-24 months). If the property is already generating rental income and you can close within 21-30 days, go directly to DSCR. Use bridge only when you need speed or the property is not yet ready for DSCR qualification.
Bridge vs. Home Equity Line of Credit (HELOC): A HELOC on your primary residence can serve a similar function at a lower rate. But HELOCs take 30-45 days to establish, have lower limits, and put your primary residence at risk. For professional investors, bridge loans through a private lender offer a cleaner, faster solution.
Getting Started
If you need short-term financing for an acquisition, transition, or stabilization period, AIRE Lending offers bridge loan programs starting at competitive rates. Pre-qualify in 60 seconds to see your estimated terms — including rate, maximum loan amount, and monthly payment. No documents required, no credit pull.