So, bridge loans are different from hard money loans. But where does gap funding fit into the mix for real estate investors?
Gap Funding vs Bridge Loans
Typically, true “bridge” loans are used for three specific situations in real estate investing:
- When you’re buying a new property and already have one listed for sale
- When you need to cover down payment on a new property
- When you find a great deal but your bank’s financing won’t be ready in time.
Bridge loans are about getting you from one property to another. Gap funding is more about filling in the gaps within a single project.
What is Gap Funding in Real Estate?
Bridge loans do bridge “gaps” in your investments. But “gap funding” is something different.
Gap funding is the small amounts that investors need throughout the course of a project in addition to the bigger loan. Examples of common gap funding situations are:
- Down payments
- Contractors and other fix-up costs
- Carry costs before renting or selling
- Interest, insurance, and other payments not included in the original cost of the property.
A bank or hard money lender will be funding the majority of your project. And when you don’t have other properties, you can use a lien (like you would for a bridge loan). But without another property, you need gap funding to cover the little costs that slip through the cracks of your primary financing.
Gap funding for real estate investors can be a loan that’s anywhere from $10,000 to $100,000. Whatever costs your primary loan and your own cash won’t cover will need to be filled by a gap lender.
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