Home » Gap Financing – Gap Funding – Gap Loan – Second Position Real Estate Loan

Gap Financing – Gap Funding – Gap Loan – Second Position Real Estate Loan

Gap Loans - Gap Funding

Please note, we currently are only considering loans in Texas, if your project is outside of Texas we will not be able to review it at this time.

What is Gap Financing? Gap Financing (or gap funding loans) are second position loans to cover the Gap between the amount funded by a Hard Money Lender and the total amount needed to fund the deal (cash to close).

Who is a typical Gap Financing/Gap Loan user?

  • Experienced real estate investors and builders who are typically dealing with higher end properties with a fair amount of profit in the deal.

Why would someone want to use Gap Financing? What scenario would Gap Loans make sense?

  • A property has taken longer than expected to finish but now is sitting on the market and the investor needs relief from monthly interest payments.
  • A property is near completion but has exhausted the construction budget from the HML. Investor needs some additional funding to get the job done and listed quickly.
  • A deal is expected to be completed quickly and the investor is trying to minimize their out of pocket expense, and max out their cash on cash yield.
  • An investor has enough cash in the bank to do the deal themselves but would rather keep their reserves liquid in case another opportunity/deal comes along and needs to react quickly.

Benefits of Gap Financing

  • Bring less cash to a deal, potentially no cash and still make a sizable profit
  • Relief from interest payments by wrapping interest payments from first position loan into the Gap Loan.
  • Increase your cash-on-cash ROI.
  • Enables you to scale up the number of deals you can do at one time.

Why would a Hard Money Lender want to have a Gap Loan from TQC on top of their first position loan?

  • Gap Funding allows the HML to have their interest payments prepaid for 6 months in escrow inside the Gap Loan.
  • Allows the HML to maintain a superior position as the first position lender with an even better/lower LTV.
  • Have a second lender involved/watching/checking on their project, more eyes on a project, the better.
  • We cover the entire state of Texas (major metropolitans – Houston, DFW, San Antonio, Austin) so we can support your loans wherever they may be. One source for Gap Funding across the state means consistent rates, loan docs, procedures, expertise and service for your end borrower.
  • We work with HMLs on a daily basis and understand how to interface, and work along side of another lender. ( we play well with Hard Money Lenders)

What makes Texas Quest Capital unique?

  • We are experts in Gap Financing. Specialized training/experience on structuring, managing/processing Gap Funding loans to protect the borrower as well as the lender.
  • TQC has extensive experience working with other HML to offer a smooth, seamless funding option for borrowers.
  • We were real estate investors first, then lenders, so we understand the life of an investor and the unique challenges they face.
  • We are creative and flexible lenders – every deal isn’t the same. We look at each deal individually and determine the best way to fund the deal and can be creative/flexible with our terms.
  • We are an asset based lender, credit score and other deals are subordinate to the property we lend on.
  • You deal directly with the lender/decision maker funding the loan.
  • We look to create a relationship with our borrowers, not a one and done transaction. Most of our borrowers are repeat customers.
  • We cover the entire state of Texas, not just one local area. (Houston, Dallas, Fort Worth, San Antonio, Austin) this allows larger, more sophisticated investors and builders to use one point of contact for all of their projects. Consistent terms, processes, and service you can count on.

Takeaways on Gap Financing

  • Gap Financing isn’t for every deal.
  • Gap Financing is primarily used on higher end deals with fair amount of profit to be had.
  • Gap Financing is used to minimize cash in a deal.
  • Gap Financing is similar to an equity partner but not quite the same thing… Instead of us charging you half of the entire profit, we charge less – a set percentage of the loan amount allowing you to retain more of your profits. Easier to budget, known costs to see if a Gap Loan makes sense before the deal is funded.
  • Gap Funding allows you to do more deals. Instead of 1 at a time, now you can potentially do 3-5 for example. (You are not limited by lack of cash).

Typical Gap Loan Terms

  • Our Gap Loans are written for 12 months, with no prepayment penalty.
  • Any applicable points to be paid on front end (origination fee).
  • Interest only payments due monthly (can be wrapped inside of loan).
  • Equity share amount paid to lender on sale of the property or refi.
  • Principle amount due on sale of property or refi.

Have a property that needs quick funding? Our loan process is quick and easy! Contact Us today to get started!

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