Every short-term real estate loan is a bridge, and a bridge has to land somewhere. The exit is not the last thing you plan, it is the first thing a lender underwrites, and it is the reason two identical properties get two different answers. Get it right and the loan is a tool. Get it wrong and the loan is a deadline.
Why lenders underwrite the exit first
A private lender is funding a plan with an end date. Our bridge terms run one or two years, fix and flip 6 to 18 months and ground-up construction 12 to 18 months. At the end of that term the balance is due in full, usually as a balloon payment, because the payments in between are interest only.
So the underwriting question is not whether you can make the monthly payment. It is whether the event that repays the loan is going to happen. That is the whole file in one sentence, and it is why a borrower with excellent credit and a vague plan gets declined while a borrower with a damaged report and a signed purchase contract does not.
Exit one: the sale
The cleanest exit. You buy, you improve, you sell, the escrow repays the loan.
What makes a sale exit credible is a comparable set, not a price. Closed sales of finished properties in the same immediate area, at the finish level you are actually building, within a timeframe that reflects the current market. Listings are not evidence, a wider radius is not evidence, and a finish level the neighborhood does not pay for is a reason the exit fails at the top.
Three things to build into the plan. A realistic marketing period on top of the renovation, because the loan runs until the money arrives, not until the work is done. Selling costs, which come out of the same proceeds that repay the loan. And a price you would still accept if the first buyer walks, because on a short-term loan the second buyer is the one who matters.
Our fix and flip program publishes terms up to 18 months and no prepayment penalties, which means a sale in month six costs six months of interest and nothing more. Build the margin for a slow sale, then aim to beat it.
Exit two: the refinance
You keep the property and replace the short-term loan with long-term debt. This is the exit behind most value-add and build-to-rent projects, and it fails more often than the sale exit because it is easier to assume.
A refinance exit has to be underwritten twice: by you, using the takeout lender’s rules, and then by the takeout lender. The numbers that decide it are the finished value, the leverage the long-term program allows and, for a rental, the income the property produces.
Our rental DSCR program publishes 5, 7, 30 and 40 year fixed terms, LTV up to 80%, a 620 minimum credit score and first time investors allowed, and the rental portfolio and multifamily term loans sit on the same program. Those caps are the real ceiling on your exit, so check your projected loan against them before you buy, not after.
Then check the coverage. A DSCR loan sizes the loan against the property’s income relative to its debt service, so the rent has to be real and the expenses honest. Our post on how DSCR is calculated walks through the arithmetic line by line.
Finally, check the timing. Many long-term programs have a seasoning requirement, meaning the property must be owned or rented for a period before the refinance is allowed. Seasoning that starts after your bridge loan matures is a problem you can only solve in advance.
The exits people forget
A different loan on the same property. A second bridge, or a restructure into a longer term, when the plan is sound but the timeline moved. Common and sensible, and best arranged early.
Cash. A partner contribution, a maturing investment, proceeds from another sale. Fine as an exit, as long as it is committed rather than expected.
A sale of a different asset. Real, and worth disclosing up front, because the lender will want to understand the dependency.
What none of these are is hope. A lender can work with a plan B. A lender cannot work with a plan that was never a plan.
Underwrite both exits before you buy
The strongest deals clear the sale test and the refinance test. Run both.
For the sale test, take the finished value from closed comparable sales, subtract selling costs and the total project cost including carry and contingency, and see what is left.
For the refinance test, take the same finished value, apply the takeout program’s published leverage cap, then check the income against the coverage requirement, and see whether the resulting loan repays the bridge in full. If it does not, you have found the size of the cash you need at the refinance, which is much better found now.
A deal that clears both has optionality. A deal that clears one has a single road and no shoulder.
When the exit stops working
It happens. The buyer walks, the appraisal comes in below the projection, the contractor disappears, the rent leases below the assumption.
Call the lender in the month you learn it, not the month the loan matures. Bring the revised numbers and a proposal rather than a problem. The options are usually an extension, a partial paydown to bring the loan back inside a band, a reduced price and a faster sale, or a different takeout. All of them are available in month eight. Most of them are not in month twelve.
Where to start
The guide to hard money loans covers the full life of a short-term loan, and the bridge loan program page carries the published terms. If you want your exit tested by someone whose job is to find the hole in it, send the deal through the borrow page or call (619) 617-2797.
