Construction, Fix and Flip or Bridge: Choosing the Right Short-Term Loan

Construction, fix and flip and bridge loans are all short-term investor loans, but they solve different problems. A construction loan builds something new, a fix and flip loan improves something that already exists, and a bridge loan buys you time when speed matters more than a renovation plan.

Picking the wrong one can cost you leverage, time or both.

Construction loans: building from the ground up

Use a construction loan when there is no structure, or when you are tearing down and rebuilding. The lender underwrites the land, the plans, the budget, the permits, the builder and the after-completion value. Money goes out in draws as each stage is inspected. Because there is more to approve and more that can go wrong, files take more preparation, and projects run longer, often most of a year.

Fix and flip loans: renovating what is there

Use a fix and flip loan when you are buying an existing home and improving it. The loan is usually sized on the purchase price, the rehab budget and the after-repair value, or ARV. Rehab money is also released in draws, but the scope is smaller and the timeline shorter, often a few months. Many flip loans can also finance heavier renovations, but once the work becomes a rebuild, a construction loan may fit better.

Bridge loans: speed and flexibility

Use a bridge loan when you need to close fast or fill a short gap. Examples: buying a property before another sells, taking over a deal with a tight closing date, or holding a property while you plan your next move. Bridge loans are typically interest-only and are based mostly on the property's current value. There is usually little or no construction budget built in.

A quick way to decide

• No building yet, or a full rebuild: construction loan.
• Existing home, cosmetic to heavy rehab: fix and flip loan.
• Need to close now, little or no work planned: bridge loan.

Experience requirements differ too. At RSC Private Lending, New Construction requires 3+ completed builds, or 5+ completed projects including a build, while Fix & Flip welcomes new investors on cosmetic projects and Bridge requires no experience.

Example (illustrative numbers only): An investor finds three deals in one month. A vacant lot priced at $80,000 with plans for a $350,000 home fits a construction loan. A dated house at $260,000 needing $45,000 of updates fits a fix and flip loan. A rented duplex at $410,000 that must close in two weeks, before longer-term financing is ready, fits a bridge loan.

What this means for you

Start with what the property is today and what it needs to become. That answer usually points to the right loan. If a project sits between categories, like a major addition or a near-total gut, ask your lender which structure fits it best.

Not sure which loan fits your next deal? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.