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When is a Bridge Loan a Viable Option to Buy Land?

Whenever you are making a real estate purchase, there are multiple ways to fund the purchase.

Bridge loans are one option for those who are investing in land purchases that require

  • some enhancement
  • money faster than a conventional loan is able to be acquired
  • time needed to arrange a construction loan
  • your banker decides you are over leveraged

Those who focus on purchasing land do so for the ultimate purpose of developing the property and reselling it. For instance, contractors and investors are typically those who prefer to buy vacant land—and getting a construction loan often takes as much as a year to finalize. Time is always of the essence when it comes to purchasing land. In Minnesota, loans that take more than a few months often mean stalling development until the following Spring.

What Is a Bridge Loan?

It is just what it sounds like it should be. It bridges the gap between the time you need the money until a traditional method can be employed.

With the uptick in real estate investment becoming more common in Minneapolis, new developers are often surprised at the complex nature involved in land purchases and the restrictions many construction loans incur.

For example, many conventional construction loans require that the land in question has electrical, cable and water lines run inside the property line by a specified number of feet. Access to utilities rarely meets these requirements and running the lines can be much more costly than investors anticipate.

Other traditional loans require detailed architectural plans are in place and approved by the governing agency where the land is located. In most instances, such approval can only be requested by the landowner – which leaves out developers until the purchase can be made.

Developers who have been dealing for a number of years with one banker and have never had a problem getting a loan may suddenly get a very cold shoulder and a wake-up call when the bank tells them that they already have the maximum number of loans that the bank is comfortable holding.

It becomes even more confusing when they are told if they had ten times as many loans, the bank wouldn’t hesitate to write them a check today. There really is a “conventional loan gulf” that occurs between 10 -15 loans and over 100 – 150 loans outstanding. Bankers are not risk takers and the gap between the two is risky in their opinion since you have yet to prove that you are able to repay that many loans.

Where Do You Get a Bridge Loan?

Most funding for bridge loans comes from private money lenders. Sometimes, this is referred to as “hard money” because you get a check for “hard, cold cash” in about 72 hours after the final documents are obtained from the Title Company.

Private money lenders are individuals who are assembled by an entrepreneur with highly specialized skills at matching borrowers with investors. The entrepreneur acts as the go-between and after speaking with a developer about the project at hand, explains it to the appropriate parties.

The individual investors don’t necessarily know each other or even know who is part of the group, providing the funding for a particular project.

Finding a Bridge Lender in Minnesota

Do you need a loan to purchase land for development? Give us a call or fill out the contact form by clicking on the “Get More Info” icon in the sidebar. We will contact you and discuss your plans and the options we may be able to provide in a private setting.

We have funding available for investment property loans in Minnesota starting at $50,000 and up to as much as $3 million, depending on the details of your plan. If your ideas make sense and you meet the requirements, we will be able to fund your project.

Do you need a Hard Money Loan for your next real estate purchase or refinance fast?