Are Rehab Draws Slowing Down Your Flip Projects?

Question

One thing I don’t see discussed enough in fix-and-flip investing is the timing of rehab funding.

You can have a profitable deal on paper, but if your lender releases rehab funds in draws, you could end up paying contractors and purchasing materials before getting reimbursed.

That can put a serious strain on your cash flow, especially if you’re working on multiple properties.

I’ve noticed that having access to additional capital, whether through business lines of credit, 0% APR business credit cards, or other financing options, can help investors manage those gaps without tying up all their personal cash.

Of course, the financing has to make sense for the project.

For the experienced flippers here, how are you handling rehab draws? Are you using your own reserves, additional credit, or working out payment schedules with contractors?

I’m interested in hearing what’s working for everyone.

Chris Seveney · Answer

I do not think enough time is spent up front between the lender and the borrower on understanding the draw process.

As an example, I was talking to another investor today and getting ready to fund another draw, but the flipper was not familiar with lien waivers. He was sending them with his signature on them and was not aware that they had to come from the contractor. They were nervous that the contractor would not sign them, even though this person was doing the right thing and, of course, paying the contractor his payments.

Just like an owner of a property getting ready to flip it should have a pre-construction meeting with the contractor, the borrower/owner should have a pre-construction meeting with the lender and make sure they understand the draw process.

Adam Summerer · Answer

Draw lag is usually where flips bleed, not the purchase rate. Before you lock a lender, ask how many days from inspection to wire, whether materials can draw before labor, and if they'll do a larger initial draw so you're not floating the first two weeks. Some desks turn draws in a day or two once the inspector clears it, and that alone is worth more than shaving a point if you're running more than one project.

James Jones · Answer

Nicholas — on a BRRRR I treat the draw schedule like part of the purchase price, because it decides how much of my own cash sits in the house. Before I close, the rehab is line-itemed — roof, HVAC, flooring, kitchen, baths, electrical, plumbing — and I sequence the work so a finished stage triggers a draw before the next stage starts. I do not front-load cosmetic work while I am waiting on reimbursement for the big systems. The numbers only work if the cash comes back: buy under $100K, rehab to an ARV of $180K to $265K, then refinance on a DSCR loan at 70% to 80% LTV. If a lender's draw process is slow enough to break that sequence, that is a cost of the loan, and I price it in or I use a different lender.

Hossein Sharifi · Answer

I'd treat the draw gap as a line in the underwriting. Rough math on a $60k rehab funded in four draws: you're usually fronting one stage at a time, so $15–20k of your own cash is out at any moment, plus a week or two for each inspection and wire. Multiply that by your active projects and that's your real liquidity need, not just the down payments.

What helps most is matching the contractor's payment schedule to the lender's draw stages, and ordering the draw inspection the day a stage is done rather than when the invoice arrives. Some lenders will also fund part of the first draw at closing for materials if you ask before you sign. Cards can bridge the gap, but only if the timeline doesn't slip.

Ashish Acharya · Answer

Nicholas, this is a real issue. A deal can look profitable on paper and still put you in a tough spot if the rehab money comes back slower than the contractors need to be paid. I’d look at the funding gap as part of the deal underwriting from the beginning, not as something to figure out once the rehab starts. If you're working on multiple properties, knowing how much cash each project can tie up at any point can make a big difference.

I’d also add the tax side to that project tracking. I’d keep the rehab costs, financing costs, contractor payments, and other project expenses clearly separated by property. Not every dollar spent during a rehab is treated the same way for tax purposes, so having the records organized makes the tax side much easier when the project is eventually sold.

And if you're doing flips consistently with meaningful profit, I'd also evaluate whether an S-Corp makes sense for the active flipping business. It isn't automatically a tax savings strategy, so profit level, volume, reasonable compensation, payroll costs, and the rest of the tax picture all matter.

For me, the best rehab funding strategy is the one that lets you finish the project without putting unnecessary pressure on your personal cash, while still leaving enough margin and reserves if the timeline slips.

Are Rehab Draws Slowing Down Your Flip Projects?

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