With the country well on its way towards economic recovery after COVID, prospects in the Arizona property market have improved substantially. According to a Zillow study, home values have increased by a remarkable 33 percent over the past year, with a further 20 percent increase predicted to occur over the course of the next year. At the same time, new leases for commercial property have been up by close to 70 percent over the past year.
What does all of this mean for real estate entrepreneurs? Right now, at this inflection point between recovery and post-COVID growth, real estate players have a unique opportunity to capitalize on favorable price dynamics – to get in on the ground floor before a boom that could take off just a couple months from now. Many Colonial Capital clients recognize this. Over the past few months, we’ve seen heightened interest in bridge loan financing, leveraging their equity in higher value properties purchased pre-COVID to get the cash on hand to purchase new assets at favorable price points before the boom. Before we start, though, let’s take a step back. What is a bridge loan in the first place?
What is a Bridge Loan?
A bridge loan, as the name suggests, helps bridge the gap between a client’s current liquidity position and the cash they need in the short-term, before a pending transaction is completed. In real estate, bridge loans are often sought out by fix and flippers: you’ve locked down a deal to sell an existing property. You spot a new opportunity; you will have money from the prior sale in a few weeks to a month, but you need cash on hand right now to purchase the new spot. In these situations, your equity in the old property about to be sold acts as collateral, and the short-term bridge loan gives you what you need to make that next purchase.
Why an Arizona Bridge Loan Could Make Sense Right Now
With the rapid rise in both commercial and residential property prices, competition is heating up amongst buyers. This means that you’ll often have less time than before to secure financing for a fix-and-flip – there’s always going to be someone else, eager to get in on the action. A bridge loan in Arizona could be the answer you’re looking for: commercial property lending can help you unlock the power of your existing equity and benefit from the coming boom. Let’s take a look now at how we provided ACG, a Colonial client, with a bridge loan to purchase and renovate a four-family residential Phoenix property.
How Colonial Capital Helped ACG Pick up and Renovate a Multifamily Property with a $563,000 Fix and Flip Loan
ACG (Anaconda Capital Group) is a long-term Colonial Capital partner. Over the past few years, we’ve offered commercial property lending services to them – nine loans to finance various property purchases. ACG’s business model is straightforward: focusing on semi-distressed properties in high growth areas. These are usually residential properties in worse shape and with fewer conveniences than neighboring properties, and an accordingly lower value. ACG goes in and renovates them after the purchase, forcing appreciation and bringing the value in-line with the average for that area. ACG then either sells said property or holds onto the asset until the neighborhood’s high growth potential kicks in.
Often, this means an extended period of time between making a purchase, renovating the property, and then selling it…which is where ACG holds equity. In today’s post-COVID Phoenix property market, this made bridge loans a particularly good option for ACG, allowing them to leverage the value of existing properties to make new acquisitions at a time of increased market energy. Let’s take a look at a specific bridge Colonial Capital offered ACG last year, and how it helped the company achieve its goals.
814 N. 8th Avenue, a 4-flex Multifamily Property in High Demand
Last July, ACG reached out to Colonial Capital about getting a bridge loan. ACG has vast experience with bridge loans and they consistently met repayment terms, so we happily listed to them. ACG was interested in purchasing a semi-distressed 4-unit multi-family property at 814 N. 8th Avenue. The property was 2,600 square feet in size, with the individual units coming in at 650 square feet each, and sits on a 0.15-acre lot.
ACG had finalized negotiations with the current owner, but needed to raise the cash to purchase it within a fairly narrow 4 week window, as there were other prospective buyers in the picture, too. ACG planned to use the bridge loan funds to both purchase and renovate the property. 48 hours after inspection, we found ourselves handing ACG a bridge loan term at a 70 percent LTC, at $140,750 per unit. This covered the majority of their capital requirements, both for purchasing the units and for renovating them. We offered the bridge loan at a reasonable interest rate.
The bridge loan that Colonial provided empowered ACG to purchase the new property, with cash on hand, in just 72 hours. They then renovated all four units, replacing the flooring and improving bathrooms and kitchens in each of the housing units. This brought them in line with the rest of the residential properties on N. 8th Avenue, and resulted in the property appreciating meaningfully over the next 5-6 months.
ACG’s holding onto this property at the moment, to realize further gains, with rent expected to go up 6 percent, year over year. Colonial Capital’s bridge loan empowered this Phoenix real estate investor to pick up and renovate a property and realize a significant positive ROI.
With the market heating up, FOMO is very real for Phoenix real estate players. The rapid, month on month rise in property values makes right now an ideal time to invest. However, competition makes it critical to have the cash on hand to actually purchase the properties you’re looking at. A bridge loan can help you cover the gap and make that purchase.
Reach out to Colonial Capital today! We specialize in real estate loans: in today’s competitive market, let’s talk about how a bridge loan might be the right option for you.