First hard money loan

[Tyriek Hull]

Hello so I just closed on my first property and thought I was educated with how hard money lenders works but seems I may have misunderstood. 

So I have a fully funded construction budget of 58k. But it sounds like I have to pay first and basically ask for a reimbursement? I’m totally confused as to what’s the point of having a loan if I’m still using my capital basically to fund the rehab. And finding a contractor who’s gonna take on material & labor cost is gonna be hard specially when I’m just starting out. 

Any advice anyone can share? 

I do have a contractor and we’re already drawing up plans but I don’t think he was fan when he found out they require work to be done before any draws. does having a contract in place with contractors make situation better for them to upfront cost? 

[Mike Klarman]

Imagine if a lender just gave you everything up front.  You buy a house for 100k and put 60k into.  You put up 20k so the loan amount is 140k.  At closing you get a house plus 40k profit.  What if you move to Europe.  Now what?  What if they give you it all and you blow the money in Vegas?  Now what?

They have to operate on reimbursed work only or else the industry would crumble.

Usually, you front like 20% of the budget to the contractor so he can buy materials and pay labor costs until some work is done and then he can live off the draws.  The last draw would be you getting your money back.