Would You Pay a Higher Rate for a Better Rehab Draw Process?

Question

Most hard money comparisons focus on interest rate, points, LTC, and ARV.

But a cheaper loan can become expensive fast if every draw requires a slow inspection, reimbursement takes a week, or unused funds can’t be moved between budget categories.

Would you accept slightly worse pricing for:

• faster photo-based draws
• fewer inspection fees
• flexibility between line items
• partial upfront rehab funding
• a lender who processes changes quickly

For investors who’ve used multiple lenders, which draw-process term matters most after closing?

Nick Belsky · Answer

As a broker, I can say that I've seen more and more clients focusing on Draw Speed this past year, moreso than anything else.  I think @Ricky Trinidad laid it out perfectly.  I've adjusted my follow up and feedback with clients to learn more about the lender's draw processes.  I was very surprised to find a few of my "top" lenders had horrible draw processes.  Cost per draw not being the issue, but requiring notarized lien waivers and 5-7 day draw times on every single draw was a surprise.

As a remedy to ensure better client experiences post closing, I've vetted all of my resources and ensure to provide this pertinent info when providing quotes to clients.  I can honestly say several have take lower leverage and/or higher cost and rates for those options with faster, smoother draws.  I rarely encounter a client who focuses mostly on rates for Hard Money, but when I do, they tend to be new or with little experience.

Cheers!

Ricky Trinidad · Answer

Great question! I've been running draws on new construction and rehab projects since 1996, so I'll answer from the borrower side of the table.

Draw speed. By a wide margin! The cost difference never moves the needle enough for me. Speed always wins.

Here's the math nobody runs when they compare lenders. Say the rate difference is 1%. On a $200,000 loan over an 8 month project, that's about $1,300. Now say the slower lender takes 10 extra days per draw and you pull 4 draws. That's 40 days of subs waiting on money, trades walking to other jobs, and your schedule sliding. A 40 day slip on a flip carrying $3,500 a month in interest, taxes, insurance, and utilities costs you $4,600. And that's before you count what a delayed listing does to your exit if the market's cooling.

So yes, I'd take worse pricing for faster draws. Here's how I'd rank your list:

• 1. Draw speed (photo based or next day inspection)
• 2. Flexibility between line items. No budget survives the project. If I save $4,000 on flooring and need it for framing surprises, a lender who makes me file paperwork for that move is costing me weeks.
• 3. Partial upfront rehab funding. Helps cash flow, but fast draws mostly solve the same problem.
• 4. Fewer inspection fees. Real money, but small. $150 a draw times 4 draws is $600. See the math above.

One more thing. Ask the lender their average days from draw request to funds wired, and get it in writing or from a reference. Every lender says they're fast. The wire date doesn't lie.

Mike Grudzien · Answer

They all matter.