Calgary Real Estate: Understanding the Different Types of Financing Methods

 

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The real estate market in Calgary is growing at an unprecedented rate. There was an increase of 3.4% monthly and 0.2% annually for home prices in Calgary during January 2023. This increase in home prices reduced consumers' buying power, which led to a decline of about 40% in home sales. These circumstances require investors to consider more reasonable financing options. Buyers must consider funding options to finance the purchase if they want to invest in real estate.

There are several financing options available for those looking to buy real estate. Let's discuss a few of them.

Bridge Loans

Bridge loan financing refers to acquiring short-term loans that can bridge the monetary gap between the purchase and sale of properties. Basically, an investor can take a bridge loan to purchase a new property before selling the existing one. When an investor finds an attractive investment opportunity in the real estate market, they can use bridge financing to get immediate funds. These funds can then be used to buy a property that can increase in value in the future.

Bridge loans are typically taken out for six months to one year and have higher interest rates than other types of loans.

Mezzanine Loans

Mezzanine loans are a type of financing that sits between equity and debt. They are typically used to finance the equity portion of a property purchase, with the property itself serving as collateral. For example, if the borrower defaults on the mezzanine loan, the lender can take over the borrower’s equity interest in the property.

This loan is beneficial when the borrower is unable to obtain traditional financing. However, it has a higher interest rate than traditional loans.

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Permanent Loans

Permanent loans are long-term financing options used to purchase a property. They are typically used to finance stable properties with long-term leases, such as office buildings or shopping centers. Permanent loans have lower interest rates than bridge and mezzanine loans. The loan term for permanent loans can range from 10 to 30 years, depending on the terms and conditions.

When choosing a loan, it is important to consider the type of property you're purchasing, your financial situation, and your long-term goals. If you need help assessing your financial needs, Global Capital Partners Fund can help. They provide bridge financing, mezzanine loans, and permanent loans to real estate investors in Calgary. Contact them now to schedule a consultation.

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