An exchange runs on a clock nobody can extend. That single fact explains why so many exchanges are financed with private money: the deadline is fixed, and a lender who needs six weeks is not a lender, they are a way of missing the window. Here is how bridge financing fits an exchange, and what to organize before the clock starts.
First, the boundary
A 1031 exchange is a tax structure with its own rules, timelines and documentation requirements, administered through a qualified intermediary and supervised by your own tax advisor. Nothing here is tax advice, and the specifics of your exchange belong to them.
What we can tell you about is the financing, because that is where exchanges most often come apart. The intermediary can hold the proceeds perfectly and the exchange still fails if the replacement property does not close on time.
Why the timeline breaks conventional financing
An exchange gives you a defined window to identify replacement property and a further window to close it. Both run from the sale of the relinquished property and neither is negotiable.
A conventional lender’s process is not built for that. Full income documentation, third party review, a committee and a closing schedule set by someone else’s queue can easily exceed the window, particularly on commercial property or anything with a condition issue. The result is the pattern every exchange investor knows: a suitable property identified, a willing seller, and a loan that will not arrive in time.
Private money closes on the borrower’s timeline. Our files close in 5 to 7 days, and as quickly as 3 days on low documentation. That is the whole reason bridge money and exchanges go together.
How the structure usually works
The common shape is two loans doing two jobs.
A short-term loan closes the replacement property inside the exchange window. Our bridge program publishes rates from 9.00% to 13.00%, LTV up to 75% on residential and 70% on commercial, loans from $150,000 to $25,000,000, terms of one or two years and no prepayment penalties. Larger or commercial replacement property runs on the same program, up to $25,000,000 on a business purpose file at up to 70% LTV on commercial.
A long-term loan replaces it once the exchange is complete. With no deadline left, you can take the time a conventional or portfolio loan needs. Our rental DSCR program publishes 5, 7, 30 and 40 year fixed terms, LTV up to 80% and rates from 6.50% on the Non-QM tier. On commercial property, our commercial program publishes rates from 7.90% private and 6.00% institutional, LTV up to 70% and terms of 1, 2, 3 and 15 years.
No prepayment penalty on the bridge matters more here than almost anywhere else, because the plan is to repay it as soon as the long-term loan is ready.
The other place bridge money helps
Exchanges also break at the other end, when the relinquished property has not sold and the replacement opportunity is now.
A bridge loan against the property you are selling, or against other property you own, can fund an acquisition ahead of the sale. That is a financing decision with exchange consequences, so it has to be structured with the intermediary and the tax advisor before anything is signed. The sequence of events in an exchange matters enormously, and it is not a detail to improvise.
What a lender needs early
Send it before you identify, not after.
The relinquished property’s sale details and the closing date, because the timeline runs from there. The replacement property: address, type, price, condition and what you intend to do with it. Your value opinion with the comparable sales behind it. The intermediary’s details, so coordination can start immediately. Your entity documents, since exchange replacement property is usually taken in the same ownership structure and vesting has to match exactly. And the exit, meaning what long-term loan replaces the bridge and roughly when.
Order the preliminary title report at the same moment. Title problems do not respect exchange deadlines, and a lien that takes two weeks to clear can end the whole structure. Our post on title and escrow covers what surfaces there.
Vesting is not a detail
Exchange rules are strict about how replacement property is taken, and the lender’s documents have to match. If the relinquished property was held in a particular entity, the replacement generally needs to mirror it.
That has a practical consequence: if the entity needs to be formed, registered or brought back into good standing, do it before you identify. Our post on vesting an investment loan in an LLC covers what lenders need from entity paperwork, and your tax advisor governs what the exchange requires.
Test the takeout before you buy
The most expensive exchange mistake is closing on replacement property with a bridge that no long-term loan will refinance at the same size.
Run the test in advance. Take the property’s value, apply the long-term program’s published leverage cap, check the income against the coverage requirement if it is a rental, and confirm the resulting loan repays the bridge in full. If it comes up short, you have found the cash you will need at refinance, early enough to change the plan. Our post on exit strategy sets out how to test both routes.
Where to start
The 1031 exchange scenario page sets out how we handle these files, and the commercial loan program page carries the published commercial terms. Bring us the relinquished closing date and the replacement property as early as you can, at (619) 617-2797 or the borrow page. On an exchange, a week of notice is worth more than a quarter point of rate.
