Private and Hard Money Lender Rehab Draw Requirements.

[Felicia Walker]

I'm getting back into the investing game after focusing only on my W-2 for a good many years. Back in 06-09, I was a realtor, landlord, and flipper, but so much has changed since then. For "fix and flip" deals, I've been discussing the "draw system" with various lenders and they seem to all have different (but yet similar) systems. Is there a standard, good, or bad system out there? Some require me as the investor to start the process with my own funds and others provide 20% up-front. Some require an inspector to check the work each time, with me as the investor paying for those inspections each time. What is a reasonable system/protocol for using this time of financing?

Felicia

[Evan Polaski]

@Felicia Walker, while I have limited experience using lenders on flips, I will say my experience mirrors yours: some require very detailed reporting of costs of completed work, some are a little more "general" accounting.  One lender I had said they will send an inspector to confirm completed work, but never actually did.

All of my lenders did require me to start with my own capital for the rehabs costs, and then reimbursed 80% of those costs, so I was effectively always 20% equity, if not more, in the deal.  

Some require lien releases to be signed, others didn't, but we always got them anyways, so as not to get ourselves in trouble.

All of my loans had draw fees (typically $150-$250 per draw), and they all allowed me to pick the schedule of draws.  I typically opted for roughly 3 draws per deal, just to limit draw costs.

Also, all of my lenders charged me interest on the full loan balance at closing, even though I hadn't drawn the whole loan (which annoyed me, but I get their perspective).

So really, in my experience, I didn't find any to be "better or worse" they all seemed to have their own trade offs, i.e. more general accounting was easier for me, but higher draw cost.