How Rehab Draws Work: Inspections, Timing and Paying Your Contractor
Rehab money usually arrives after the work, not before. Here's how draws work and how to keep your project and your contractor moving.
Short answer
On most fix-and-flip loans, the rehab budget is held back at closing and released in draws. You complete a phase, request a draw, an inspector confirms the work, and the lender reimburses that phase. Because funds follow finished work, you'll need cash or contractor terms to cover each phase before it's paid.
Key points
- Rehab funds are held back and released in phases.
- Each draw follows an inspection of finished work.
- Plan cash for the first phase before the first draw.
The draw cycle
- Complete a phase of work from your approved scope.
- Request a draw with photos, invoices and lien waivers where required.
- An inspector visits and confirms what's done.
- The lender releases funds for the completed work.
Draw schedule: $60,000 rehab budget, illustrative
| Amount | |
|---|---|
| Draw 1: demolition and rough-in | $15,000 |
| Draw 2: mechanicals, roof and windows | $15,000 |
| Draw 3: drywall, kitchen and baths | $20,000 |
| Draw 4: flooring, paint and punch list | $10,000 |
| Total rehab budget | $60,000 |
Keeping your contractor paid
Because draws reimburse finished work, someone has to front each phase. The options are your own cash, a contractor willing to wait for the draw, or smaller phases with more frequent draws. Agree on this in writing before work starts.
Under contract or about to offer? Send the numbers and we'll size the loan before you commit. Size my loan
Draw mistakes that slow projects down
- A scope of work too vague for an inspector to verify
- Changing the plan without telling the lender
- Missing lien waivers or invoices
- Requesting a draw before a phase is truly complete
For how the draw budget fits into the overall loan, see fix-and-flip financing.
Frequently asked questions
How long does a rehab draw take?
It varies by lender and inspector availability, but a complete request with photos and invoices moves fastest. Ask your lender for their typical turnaround.
Can I get rehab money up front?
Most fix-and-flip loans release rehab funds after work is completed and inspected. Some lenders advance part of the first phase, so ask.
Do I pay interest on undrawn rehab funds?
It depends. Some loans charge interest only on drawn funds; others charge on the full loan amount from day one.
Get KREC insights first in Google Search.
Add KREC as a preferred source on GoogleRelated Articles
Hard money loans offer fast, flexible financing for real estate investors. Learn how they work, when to use them, and what to expect.
Everything you need to know about fix and flip financing, from loan terms to maximizing your profits on renovation projects.
How DSCR loans qualify a rental on its rent instead of your income: the formula, a worked example, what lenders check and a five-minute self-test.
Ready to Apply What You've Learned?
Get pre-approved for your next investment property. Fast closings, flexible terms.
Get Started Today