· Education · Sayasone Phongvichith
From bridge to 30-year rental: how the exit test works
A Stabilized Bridge loan is meant to hand off to a long-term rental loan. Here is the 1.10x exit test and what the desk looks at.
A short-term loan only works if you know what replaces it. For many investors the answer is a long-term rental loan, and Stabilized Bridge is built with that handoff in mind.
The bridge
Stabilized Bridge is a 12-month, interest-only loan with a balloon at maturity. Extensions of up to 50% of the original term are available for a fee. It is for rent-ready or listed 1 to 4 unit property with no renovation planned.
The exit test
Property condition is rated C1 to C4, with C1 and C2 the better-condition properties.
- C1 to C2: no DSCR exit test.
- C3 to C4: underwritten to a 1.10x exit DSCR, using the lower of in-place rent and market rent, so the loan can convert to a 30-year rental loan.
The published minimum on RED's Rental Loan (DSCR) is 1.05x, so the exit test on the bridge sits a step above it. Think of it as a margin of safety for the handoff.
Why the lower rent?
Using the lower of in-place and market rent keeps the test honest. A lease signed well under market does not get a pass, and a market estimate does not stand in for rent that is not being collected.
What to do with this
Before you close on the bridge, run your own numbers: the rent, then the monthly principal, interest, taxes, insurance and association dues on a long-term loan. If the rent does not clear 1.10x on the lower-rent basis, plan for a different exit or a different property.
What to send the desk
The contract, the lease or listing agreement, and the last three years of your investment property history. Pricing is quoted per deal.
Program figures are indicative only and subject to complete documentation, underwriting, appraisal and final credit approval. This post is general information, not financial or legal advice.