What am I doing wrong

5 Replies

Hey I'm in the process of flipping my first house and I have a hard money lender loan. I did not realize that you don't get your draw until after a part of your project is completed for example you get your demo draw (money) after the house has been demoed.

My first question is Is that common practice for hard money lender to not pay you until after a job has been done?

After we completed demo we had some unexpected expenses. I'm having to replace a whole wall because of water and termite damage none of this was in my rehab budget. So I paid for it out of my pocket however it's making it difficult to move on to the next part.

Is building a new outside wall and replacing the band seal the same as exterior capentry on a draw schedule rehab form?   

PS: My general contractor is being very reasonable considering the circumstances.

@Raeshal Solomon

Re- Draws not paid till work completed. 

Yes this is a very common practice. Investors and lenders need to protect themselves and only make payments once work has been inspected and completed. We do the same on any projects we are involved in. 

Best of luck in all your endeavors.  

Originally posted by @Raeshal Solomon :

Hey I'm in the process of flipping my first house and I have a hard money lender loan. I did not realize that you don't get your draw until after a part of your project is completed for example you get your demo draw (money) after the house has been demoed.

My first question is Is that common practice for hard money lender to not pay you until after a job has been done?

After we completed demo we had some unexpected expenses. I'm having to replace a whole wall because of water and termite damage none of this was in my rehab budget. So I paid for it out of my pocket however it's making it difficult to move on to the next part.

Is building a new outside wall and replacing the band seal the same as exterior capentry on a draw schedule rehab form?   

PS: My general contractor is being very reasonable considering the circumstances.

 You need to complete the portions of the work before you can request a draw for that item.

You need to check with your lender on defining the draw items. Exterior carpentry is usually items outside the structure and not the structure itself.

That is very common and a way for the lender to mitigate and have more control of their funds. In many ways it is a way to protect you also so you're not spending all the money on rehabs at once. This will allow you to plan your project out in a more thoughtful process. 

You didn't have this conversation about the draws and Scope of Work before you signed on the dotted line? 

@Raeshal Solomon yes every “professional lender”, meaning bank, hard money etc will do draws this way.

You could probably find a private lender to front money to you but that usually only comes with experience and can be very expensive

Thank you all for your help. This change only slows down my timeline. It took us a week to regroup. I was able to have a conversation with my GC. We agreed to Net 30 all the Subcontractor. I buy the materials as needed and they get paid up to 30 days after the work is done. 

The lender and I did have a conversation about the draws, but I didn't realize that work needed to be completed first. I'm sure I just didn't ask the right questions. 

Your information really did help I have already put processes in place to not repeat the same issue in the future.