Christy Murdock Edgar is a regular Inman contributor who writes about news, tech and marketing. She has two recurring columns, “Lessons Learned” and “Dear Marketing Mastermind” that publish weekly and monthly on Mondays and Tuesdays respectively.
Think about some of your most heart-breaking deals: the ones that looked so promising but ultimately fell through. Maybe they involved a home sale contingency that just didn’t materialize or an all-cash offer that changed the game. Maybe you’ve written offer after offer for buyer clients who were ultimately beaten out by quick-closing investors.
If you work in a hot market you might need to create additional opportunities to help your clients compete.
According to Sofia Nadjibi, principal broker and owner of Golden Gate Lending Group in the red hot San Francisco market, bridge loans might be the answer for a variety of difficult buyer scenarios, creating more options and more leverage to get your clients back in the running during a complicated negotiation.
Bridge loan basics
According to Nadjibi, the big advantage of bridge loans is the customization options they provide. Working with direct private investors, institutional investors and hard-money sources, Golden Gate offers greater flexibility than traditional mortgage products.
“I see my job as working for the client and the real estate broker,” Nadjibi said, “and that’s why I work with a variety of lenders and investors to ensure we can get a product that works for the particular scenario.”
Through bridge loans, clients can mimic an all-cash offer with no contingencies and often qualify for 100 percent financing, essential when competing against more monied buyers or investors.
To secure her position, Nadjibi’s firm cross-collateralizes the equity positions of other properties, so this loan is perfect for homebuyers who have not yet sold their current home but want to avoid a deal-killing home sale contingency.
“We look at the property the client currently owns, look at their equity position in that property, look at the property they want to buy, then do a cross-collateralized loan. Sometimes if there is not enough property in the primary home we can use second homes or rental/investment properties. I have been able to cross-collateralize up to five properties on one deal.”
Nadjibi looks for a very strong exit strategy with a duration of no more than two to six months because interest rates are higher on these loans than on a traditional home loan. This helps ensure that the strategy is a win for the borrower on both sides of the transaction.
Using bridge loans to help clients compete with all-cash offers
While her firm writes loans throughout California, her strategies are informed by the hyper-competitive Bay Area real estate market.
“Our market is particularly competitive, and most houses here are unique. Clients fall in love with a home, and they need to have the strongest possible position to get the best terms and the highest price. That’s what a purchase money bridge loan does, allowing clients to compete with all-cash buyers.”
Nadjibi begins talking to investors upon pre-approval to ensure that by the time the client is ready to offer, the funds are in place.
“Most bridge lenders are traditional hard-money guys. They don’t look at this from the real estate agent’s perspective. I want to help agents and brokers make the loan process easy and seamless for their clients. That’s what this does.”
In addition, the high-dollar Bay Area market means that most clients don’t have the huge sums they need for a down payment, especially if they already own a home. By working with a bridge loan, they can tap into the equity in their existing property to cover the down payment, then pay that off when they sell.
Just last week, Nadjibi worked with a young couple with an 18-month-old son. They were under contract to buy a home in San Francisco — a property that had received more than 10 other offers. The closing date was fast approaching, but the funds the couple needed to secure the deal were not yet available.
They’d spent years building a company, assets and equity, and they were ready to cash in and parlay those years of hard work into cash — and a new property. Selling a multimillion dollar company takes time, time they did not have.
The couple was scrambling and worried. Their real estate agent recommended speaking with Nadjibi.
With three days until closing, another buyer upped their backup offer by $200,000. The couple needed to move fast. Nadjibi’s team worked throughout the weekend to secure funding.
By Monday, the team had collaborated with all parties to decide on a $1.5 million short-term private money loan. They needed to close by Wednesday end-of-day, or the sellers would accept the backup offer. The team worked their connections to have loan documents at the title company Tuesday; they signed, funded and closed Wednesday — within 10 minutes of the closing time.
What other scenarios are bridge loans helpful for?
“It’s really the logical way of buying and selling,” Nadjibi said. “Instead of putting the home on the market as-is, you can find the new home, put in an offer, close, move in and properly update and stage the previous home for a quick sale.”
Because Nadjibi specializes in bridge loans, she can close in three to five days. “This works very well in a situation where a traditional loan fell through or in an all-cash situation where the client can’t get their cash together quick enough. We can step in and provide and quick, short-term loan to keep the deal together.
Of course, for agents and brokers who work with investors, bridge loans are essential. “In the last year, because the market is softening in a lot of places, we see investors who want to tap into the equity in their portfolio in order to take on new projects. We can help them do that through bridge loans.”