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What Is A Bridge Loan?   If you have been looking at the products available for commercial and residential real estate loans, you have probably encountered the term bridge loan before. Unless you’ve had to apply for one, though, you might not realize what bridge loans are or how they are used.  These are short-term loans designed to allow borrowers to: In the case of investing in bridge loans, the third reason is the most common. These are the loans mostly used by “house flippers”; real estate investors who purchase and rehabilitate properties before reselling them. They represent a great investment opportunity too, and if you are interested in getting into real estate lending as an investment, you need to know how investing in a bridge loan – or portfolios of bridge loans – can provide you with a great return in a relatively short amount of time.

Bridge Loan Features

Before deciding to take the plunge and starting to invest in bridge loans, it’s important to understand the pros and cons,  and exactly how these products work for the lender, and by extension, the investor who is investing in the loans.

Other Types Of Bridge Debt

If you are looking for bridge loan investment opportunities, it’s important to understand the diversity of the investment opportunities available. Residential bridge debt is one major category of these loans readily available to individual investors. However, there are other types of bridge loans. Some are used by real estate investors operating in the multifamily and commercial space, and others are used by companies buying and developing new facilities for their own use, or as a stopgap while other financing is sought. Each of these types of bridge debt brings with it unique risks and opportunities, so it is important to understand the specific types you invest in and to balance your investments.

The Future Of Bridge Debt

These loans have been powerful instruments allowing for economic development to a wide variety of businesses for many years. It’s not likely that will change anytime soon, but what is likely is that there will be fluctuation in the demand for basic residential bridge loans in various states, cities, and neighborhoods. That’s because residential property investment is its own business with its own very local cycles. By diversifying into a range of bridge debt, though, investors can reap the rewards of the high-interest rates while opening themselves up to more investment opportunities in any market. Advance your investing knowledge by understanding the tax implications around another investment avenue: real estate crowdfunding. Free eBook Download   What’s the economic driver in your city? In San Francisco, it’s technology companies. In L.A., it’s the movie industry. In New Orleans, it’s the port. In Atlanta—don’t let all the Coca-Cola signs fool you—it’s real estate and it always has been.

Atlanta Real Estate Market Analysis

Atlanta, Georgia: Growth Engine Of The Southeast

As a land-central city with no physical barriers impeding suburban sprawl, Atlanta has seen a huge influx of investment in commercial, multi-family, and single family buildings in the last 24 months. This trend is confirmed by the HomeUnion 2017 Single Family Rental report where single family home new permit requests grew only modestly but multi-family permit requests continue a growth trend started back in 2011. The AlphaFlow Investment team recently visited Atlanta and spent time driving across the region to interview local residents and lenders to see what’s driving the growth in this market. While online market reports and survey data are helpful, there is no comparison to kicking the tires and viewing a region’s dynamics and key trends first hand.

What Makes The Atlanta Real Estate Market So Healthy?

Below are some trends in the Atlanta real estate market for every investor to know about: 1) Millennials Moving To Atlanta 2) Shortage Of Housing Inventory In Town If you want to know about home sales in Atlanta, then the Atlanta Realtors is where to look and they make this handy infographic as part of their June Market Brief, the most recent one available.   Atlanta realtors market brief - click for full length image   The Numbers: Where You Want to Live Where You Want to Invest These are all ‘in town’ neighborhoods. ‘In town’ in Atlanta means inside I-285, the Perimeter that circles the city. Many people, not just millennials, want to move in town closer to the city and its amenities. There are simply not enough homes for everyone that wants to live there. Housing supply dropped 4.9% over June 2016, per Market Brief, and inventory sits at a low 3.2 months. Housing starts are well below peak levels according to HomeUnion, which they attribute to low margins for entry level homes and high land costs. House flippers have noticed the shortage too. In Atlanta, flips were just under 8% of all home sales in 2016, above the national average of 6.1%. 3) New Cities Forming Most of Atlanta and these most desirable neighborhoods are in 2 counties: Fulton and Dekalb. These 2 counties have seen at least 5 new cities form in the last 5 years. Motivation for forming new cities include more local control and taking some power and revenue away from the county government, who they see as inept or inefficient at running their county. New cities include Brookhaven, Sandy Springs, Dunwoody and Tucker, all of which are good areas for living, investing or both. Many of these new cities need the tax base that comes from residential property taxes to run their new city government. The result is a welcoming environment for remodelers, rehabbers, builders, infill housing and anything that takes the existing land/property and makes it more valuable.

Understanding Atlanta’s Key Areas And Ongoing Projects

Heat And Shortage In The Market

You will often hear in conversation people stating that the Atlanta real estate market is “overheating” or the market has “reached its top”. While this may be true from a holistic standpoint (as one needs to be more prudent in their analysis, stress testing, and investment selection) real estate is, at its core, a local industry and needs to be evaluated at a neighborhood level, not only from a macro view. Atlanta’s real estate market may look overheated from an outside general view, but is backed by good fundamentals when you dig into its local trends at a neighborhood level. When there is a housing shortage in an attractive city like Atlanta, teardowns, infill housing, and rehab projects start popping up everywhere, and these are exactly the kinds of projects we fund at AlphaFlow.

In Conclusion

These rehab projects are great potential acquisitions for AlphaFlow and we expect to see more coming out of Atlanta for the next few years. Not only do these projects boast attractive yield but they also are accompanied by seasoned local developers who are in tune with neighborhood fundamentals. The AlphaFlow Investment Team will target loans in specific regions of the Atlanta real estate market for our client’s portfolios as we see overall desirability increase with greater public and private investments.  

About the author:

Miles DeamerMiles Deamer is the Director of Investments at AlphaFlow. He is responsible for the acquisition, underwriting and execution of real estate debt investments. Before AlphaFlow, Miles was one of the earliest employees at LendingHome, helping scale the sales, operations, & servicing teams. Early in his career, Miles was a member of the credit team at First Republic Bank (NYSC:FRC) reporting directly to the Chief of Credit. 

Miles received a BS in Real Estate Development from USC where he was a member of a Division I National Championship Water Polo Team.

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