Real Estate Bridge Funds: Investing in a Volatile Market

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published 25 June 2025

In volatile markets, it's often the creative investors — not just the conservative ones — who stay ahead. Real estate is no exception.

While many investors are sitting on the sidelines waiting for clarity, others are gaining exposure through lesser-known vehicles, such as bridge funds — investment strategies that lend short-term capital to real estate projects and generate potential returns through interest income and fees.

What are bridge funds?

Bridge funds pool investor capital to provide short-term loans — commonly known as bridge loans — to real estate operators and developers. These loans typically finance transitional properties or time-sensitive acquisitions before the borrower secures permanent financing.

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While bridge loans have long been a tool for developers, what's less widely known is that real estate investors can also participate in this space through professionally managed funds.

These funds issue loans backed by real estate collateral, and potentially earn interest, origination fees and other upside. Because most bridge funds are offered through private placements, participation is generally limited to accredited investors.

To qualify as accredited, an individual must meet specific income or net worth thresholds, such as having a net worth over $1 million (excluding a primary residence) or annual income exceeding $200,000 individually or $300,000 with a spouse.

How bridge funds work

Bridge funds serve two key groups:

Borrowers. Real estate sponsors often need fast, flexible capital — whether they’re acquiring a property, making improvements or bridging to permanent financing. With banks tightening lending standards, these short-term loans help close deals on tight timelines.
Investors. Instead of buying property yourself, you can pool money with others to fund these short-term loans. You’re not managing tenants or overseeing renovations. You’re stepping in when capital is needed most — and potentially earning income for providing that speed and flexibility.

The rise of bridge funds for investors

Bridge financing has become especially relevant in today’s real estate environment.

Interest rates are high, traditional financing is slower and many borrowers face tighter capital constraints. This has opened the door for private bridge lenders — and the investors who fund them.

For investors, bridge fund investments may offer:

Passive income. Consistent income from loan interest and fees
Shorter hold periods. Shorter durations than typical real estate investments
Default protection. Collateralized by real estate assets pledged to secure the loan

For investors, this means the potential to earn attractive risk-adjusted returns while sitting higher in the capital stack than an equity investor.

In many cases, the loans are collateralized by the property itself, and borrowers are incentivized to repay quickly to transition to longer-term, lower-cost financing.

What investors should know

Bridge funds aren't magic. Like any investment, they come with risk, especially if the fund is poorly managed or if deals underperform.

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Loan defaults, delays in refinancing and valuation mismatches can all affect returns.

That’s why due diligence is essential. Investors should closely evaluate:

Experience. The fund manager’s experience and underwriting track record
Strategies. Diversification strategy (by asset type, geography and borrower)
Structure. The fund’s liquidity terms and fee structure

An opportunity for the right investor

Bridge funds aren't just about plugging gaps, they're about seizing opportunities. Real estate sponsors use bridge loans to act quickly and reposition assets, and investors help power that flexibility without taking on the full risk of owning property.

In today’s uncertain equity markets, bridge lending can offer a creative, income-generating and countercyclical way to stay active in real estate — while others wait on the sidelines.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Edward Fernandez is President and Chief Executive Officer of 1031 Crowdfunding. With three-year revenue growth of 482%, 1031 Crowdfunding received ranking No. 1348 among America’s Fastest-Growing Private Companies on the Inc. 5000 list. Mr. Fernandez holds FINRA Series 6, 7, 24, and 63 licenses and is a Forbes Business Council Member. He has over 20 years of inside and outside sales experience and is personally involved in raising over $800 million of equity from individual and institutional investors through private and public real estate offerings. He is highly skilled in the simplification of highly complex real estate strategies and sophisticated investments and is regularly featured on Forbes, Inc., and the TD Ameritrade Network.