Bridge Loan

A bridge loan is short-term financing that covers the gap until a permanent loan or a sale closes. In rental investing it funds a purchase or renovation before the property qualifies for a long-term mortgage. Cash on cash return is rarely meaningful during the bridge period.

Bridge financing usually costs more in rate and fees than a permanent loan, and many are interest only. While it is in place, cash flow can be thin or negative, especially if units are vacant during the work.

Track every bridge cost as part of cash invested: points, interest carried while the property was empty, and extension fees if the work runs long. When the permanent loan closes, divide the stabilized cash flow by that full total. Leaving the bridge costs out makes the finished deal look better than it was.

Further reading: Bridge Loan on Wikipedia.