I feel as though the term “bridge financing” has a negative connotation, and it really shouldn’t.

Use this to your advantage.  Not to your detriment!

For those of you readers who happen to be men in their early 30’s, do you remember the G.I. Joe bridge-layer?

This was probably the best G.I. Joe toy to ever come out of the mid-1980’s.

The bridge-layer was a vehicle designed to create a small bridge for Joe troops or other vehicles to cross, and after the bridge was deployed, the rest of the bridge-layer itself could detach and drive over the bridge as well!

I never owned the bridge-layer, but I borrowed it from a friend for a weekend (in exchange for the Dreadnocks Thunder Machine…) and I dug up holes in my backyard so the bridge layer could deploy and allow Joes to avoid falling to their death in the pit.

The bridge served its purpose, and without it, the Joes would be unable to achieve their ultimate goal.

Coincidently, this is also how bridge financing works.

Without bridge financing, many buyers wouldn’t be able to close on real estate transactions for larger and more valuable properties.

In lieu of my own explanation, here is the definition of “bridge financing” as per Wikipedia:

“Bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of an asset.  For example, when selling a house, the owner may not receive the cash for 90 days, but has already purchased a new home and must pay for it in 30 days. Bridge financing covers the 60 day gap in cash flows.”

And THAT is why Wikipedia comes up 1st on search engine rankings when you type in any keyword.

Many, if not most people will use bridge financing when purchasing a new property and selling an existing one, but it is the length of the bridge that I want to talk about today.

I had this conversation with a client back in the summer: I sold a house to a young couple with a July 22nd closing date, and then I sold their condo.  When I asked, “What day do you want your condo to close?”  They looked confused and gave me their “obvious” answer: July 22nd.

I told them that this wasn’t the best idea, and that they should take the weekend to themselves!  Close the condo on the following Monday – the 25th!  Take three days to slowly and conveniently move out of their condo and into the new home, and then close the condo the next week.

They told me that they their mortgage broker advised them to close both properties on the same day (which I have a hard time believing, since I can’t fathom a mortgage broker suggesting this), and that they didn’t want to incur any additional costs for bridge financing.

Really?  “Additional” costs?

I consider the cost of bridge financing to be a given!  I don’t consider it “additional.”

Do you have any idea how difficult it is to move out of one property and into another, all in the same day?

Assuming that both transactions close around 4PM, you’d have to move everything out of your existing property by mid-afternoon, and essentially sit around and wait to close on the new property, then obtain the keys, then complete the move in the early evening.

Why go to all that trouble?

Bridge financing isn’t that expensive.  I had a client bridge last week and it was about $16 per day for a $100,000 bridge.  What’s wrong with taking three days and spending $48?

I’m looking at this from a proactive approach, but in hindsight, it’s a lot worse.

I’ve had clients close both properties on the same day and then say, “We should have never done that.  I can’t believe we did everything on the same day.”  Or even before the day of closing, I’ve had clients say, “I am NOT looking forward to Friday!  Moving both properties?  Ugh…”

Well, this reminds me of a very popular commercial campaign for financial services.

Have you ever seen those commercials for ING where an unhappy individual wanes, “I just want to stop paying chequing fees,” and then a simpleton (ie. their daughter, the garbage-man passing by, etc), replies, “If you want to stop paying chequing fees, then stop paying chequing fees.”

Well it’s the same with closing two properties on the same day.

To the person who says, “I’m NOT looking forward to closing two properties on the same day,” I say, “If you don’t want to close two properties on the same day, then don’t close two properties on the same day.”

I know – it sounds a lot better in the ING commercials.  But you get the point.

You hold all the cards, and you make the financial decisions with respect to your mortgage, properties, and the bridge.

If you don’t want to experience a day from hell, then extend the bridge.

Even if your bridge is $400,000, and you need a full week to move out of your existing property, paint the new place, install tile, etc, that’s only $460.  How much is $460 in the grand scheme of things?  Sure, it’s the cost of your new BBQ, your yearly gym membership, or ten cases of Corona, but isn’t it worth paying to remove the aggravation of doing everything in ONE day?

I feel as though “bridge” has become a dirty word.  Our parents have this old-school mentality and encourage us not to extend the bridge, but it’s not like borrowing from a loan shark.  “The juice is twenty points a week!”  Hmmmm….not likely.

I’ve had clients bridge for as long as three months, and there are times when it makes perfect sense.

I wanted to do some work at my new condo, so I had a fourteen day bridge.  It cost me some money, but it enabled me to have contractors at the new property working with no obstacles, and I was never worried about my TV or sofa getting paint or sawdust on it.  When the work was finished, I scrubbed down the condo, and moved everything in.

I would never entertain the thought of closing two properties on the same day, and I advise all my clients against doing so as well.

The most common closing scenario is to take possession of the new property on a Friday, since people usually move on a weekend.  Closing on a Monday or Tuesday just means you pay for a vacant property for 3-4 days.  Then when you’re finished moving in on the Saturday and/or Sunday, you have the old property close the following Monday.  Your bridge is only a few days, and you’re never really rushed.

I think many buyers get scared off by the cost of bridging – currently around 6%.

With fixed rates around 3.19%, and variable rates even lower, 6% sounds astronomical!  But you have to put this into perspective and think that maybe $200 over the course of a week isn’t that significant.

If you think that $200 is significant, then maybe the bridge is the least of your worries. 

Just wait until you make that first $3,800 monthly mortgage payment…