For Flippers - Do You Pay Contractors in Draws or Lump Sums?

Question

On your rehab projects, how do you usually structure contractor payments? Have you found lenders flexible with draws, or do you front more of the cash?

Sultan Ali · Answer

In my experience, draws tied to milestones work best. It keeps the contractor motivated and protects you from paying too much upfront if timelines slip. For example, I’ll break it into phases (demo, rough-in, finishes, final punch list) and release funds as each phase is signed off. Most lenders I’ve worked with are fine with that structure as long as there’s a clear scope of work. It can take a little more coordination, but it keeps everyone aligned and the project moving.

Jakob Mikhitarian · Answer

@Stevan Stojakovic I think draws are better instead of a lump sum at the end. Allows them to get paid when they achieve certain milestones during the project.

Michael Hernandez · Answer

Hey Stevan,

Most lenders I’ve worked with release funds on a draw schedule tied to completed work, so you typically need to front at least the first phase. For example, you’ll cover demo and rough-in costs, then the lender reimburses after inspection. Because of that lag, having some liquidity is key.

With contractors, I usually structure it as: small deposit (10% or less) + progress payments on milestones, never big chunks upfront. That keeps them motivated but limits exposure if things go sideways. If the lender’s draw doesn’t line up perfectly, I’ll bridge the gap with my own cash or a line of credit, then reimburse once the lender funds.

Flexibility varies—portfolio and private lenders are often quicker with draws, while hard money and banks can take a week or two to release funds. The smoother your scope of work and documentation (invoices, photos, permits), the faster it goes.

Bottom line: plan to carry the first 20–30% of the rehab yourself, then use draws to recycle that capital through the project.

Peter Mckernan · Answer

Most lenders will make you do draws kind of like leapfrog. You pay the contract 10K, then the lender send a person to assess work, then you get paid from the lender $10K then you pay the contractor their next draw. You do this over and over again till done.

Nick Belsky · Answer

@Stevan Stojakovic

This is where finding the right lender comes into play before you go under contract. Some lenders will only allow you to draw on completed work that is PAID in full. Some lender will allow draw on invoices that are UNPAID. Some even require the draw payments to go directly to the GC/Subs. Some will allow draws either way and send directly to the borrower. With enough experience, there are even some lenders whom will give up to 20% of the rehab budget as an advance at closing. That way you can roll the same 20% into subsequent draws until the last one.

Lots of different structures out there that a lender require, so any flipper should discuss payment with their GC/Subs prior to getting a loan to ensure no one gets ticked off or stops work waiting for payment.

For Flippers - Do You Pay Contractors in Draws or Lump Sums?

For Flippers - Do You Pay Contractors in Draws or Lump Sums?

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