One of the popular real estate investing strategies for new investors is to invest sequentially—buy one property, fix it up, sell it for a profit, put that money into a better property, and then repeat. However, if you have an income-producing property that is producing a steady cash-flow and it is paid off or has significant equity in it, then cash-out bridge loans can help you add more properties to your real estate investment portfolio without having to sell one property to pay for the next.

What is a cash-out bridge loan?

A cash-out loan allows you to take out money against a property that you already own outright, or that has enough equity that a new bridge loan would pay off the existing loan while still leaving you, the borrower, with sufficient funds to use at your own discretion. While banks will occasionally make such loans on residential properties, it is rare that a bank will allow such a loan against a commercial property unless all of the funds will be used to improve that particular property. Private and hard money lenders, on the other hand, will finance such loans without stipulating how the borrower must use the funds, providing it is for a business purpose. This does not mean that the lender will not want to know your plans for the funds, though, so borrowers should still be prepared to present a plan of how they intend to spend the money along with their exit strategy for repaying the loan at the end of its term.

How can you use a cash-out bridge loan?

If you have an improved, income-producing property in your portfolio that is paid off, then, rather than sell it, you can use it to secure a bridge loan for an LTV (loan-to-value) ratio of up to 65 percent (depending upon the lender). This money can then be used to purchase (and improve) a new property or multiple properties. This can be especially useful if you want to purchase multiple properties without taking out multiple loans or if a loan against the new property would not provide sufficient funds to cover the costs of improvements to the property.

Cash-out bridge loans give investors the opportunity to buy and hold onto strong properties while still allowing them to expand and improve their real estate investment portfolio. However, it’s important to make sure that your portfolio does not become overleveraged if you employ this strategy.

If you have a property you’d like to use to secure a cash-out bridge loan, contact Montegra at 303-377-4181 to discuss our cash-out loan terms in more detail.