I will be releasing a few parts of what an real estate investor should prepare for when buying a multi family property. There are a lot of basic information that is out there such as location, location, location, cap rate etc. Which is valuable information but real problems are not discussed and I see investors time after time getting caught with more expenses and more issues arising because they just did not know that other expenses existed.

So.....Today I will discuss debt and things you should look out for AND/OR negotiate.

One form of debt is called bridge loans. Bridge loans can be used for fix and flips as well as large commercial deals. Bridge loans are a fixed rate for a period of 1 year and can be extended for another 6months to a year. Bridge loan lenders care strictly about the value and/or the income that is being produced from the asset.

Appraisal fee

Costs to look out for when applying for a bridge loan, is the appraisal fee. If it is a small fix and flip it can range a few hundred up to 1k but when it comes to a commercial deal it can go up all the way to a few thousand. My recommendation when raising money for a deal or even doing it yourself always ask the cost of the appraisal. Most of the time an appraiser is a third party and this fee cannot be negotiated.

Origination fee
There are also origination costs which is usually what the lenders broker and/or lender themselves charge to create the loan. Most of the time brokers fee are put as a lenders origination fee. Lender may also charge attorney fees, underwriting fees and these two can either be reduced or removed completely. I always recommend to negotiate origination fee and underwriting fee.

Pre payment penalty

Usually with short term bridge loans lenders like to keep there money with the investor as long as possibly to collect on the yield and usually charge a pre-payment penalty in the event that you pay the loan off earlier. These are negotiable and usually charge the borrower a point or more based off the amount of loan.

Now to get a little deeper.....

Some bridge lenders may ask for personal guarantees. This means in the event of a lender not paying off the entire balance, lender now has the ability to come after the borrower personally to collect on the difference. Lender may attach a lien against your other home or personal name. Most of the time Bridge lenders do not remove personal guarantees unless there is a lot of equity in the deal. Lender may require you to sign a COJ (confession of judgement) or actual deed in the event of a default they can transfer ownership. My recommendation is to speak with an attorney about this but look out for these to help you negotiate.

Hope this information helps anybody looking to get a bridge loan. I don't ever like to see any investor seasoned or beginner to get hurt with expenses. My next post will be about perm debt financing fixed and floating rates.

New York City, New York

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