Fast-Track Your Fix-and-Flip: Mastering the Draw Process with Hard Money Loans
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May 29, 2024

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The real estate draw process plays a key role in fix-and-flip investments, ensuring the funding that borrowers need to execute a successful and profitable project.

In this article, we’ll look at how the draw process works with a hard money lender for your next renovation project.

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How do fix-and-flip projects work with hard money loans?

A fix-and-flip investment involves the purchase, renovation, and sale of a property for a profit.

The success of this type of investment relies heavily on the ability to secure a significant amount of financing quickly.

That’s why access to hard money loans from private lenders is critical for fix-and-flip investors.

Hard money loans provide:

  • Rapid approval and funding within days or weeks
  • Loans largely based on the after-repair value (ARV) of a property
  • Shorter terms that align with the duration of the project
  • Funding drawn in stages as project milestones are completed

Hard money loans require thorough project planning to navigate renovation and maximize profits.

What is the construction draw process for fix-and-flip projects?

The construction draw process in real estate is designed to make sure that investors have the funds they need to renovate and repair their property at each phase of the project.

The draw process protects both the lender’s investment and the borrower’s project.

Here is a general step-by-step of the construction draw process:

  1. Borrower submits a detailed budget to the lender for approval
  2. The total loan amount for renovations is split up into several draws based on completion of pre-defined and agreed-upon milestones
  3. Borrower requests a draw from the lender after completing each phase of work
  4. Lender inspects the work to ensure it’s completed according to the schedule
  5. Draw is disbursed to the borrower

The first draw for a fix-and-flip is meant to cover the property purchase, and the final draw is generally released once the project is completed.

Once the project is completed, the focus shifts to selling the property for a profit and repaying the loan.

What is the timeline for draw reimbursements?

The timeline for draw reimbursements varies by lender.

With Park Place Finance, draws are generally reimbursed three to five business days after the request. With our draw app, you may receive them in as little as 24 hours.

How to become eligible for a draw for your real estate investment

Investors must work closely with their lenders to understand the specific draw requirements and eligibility.

Otherwise, your project is at risk of unnecessary delays that can potentially derail your project and affect your overall profits.

To make sure your draws are on time, borrowers must:

  • Be current on their loan
  • Follow the agreed-upon budget and completion schedule
  • Prove that the work related to the draw has been completed

If you require any project adjustments as the timeline unfolds, contact your lender as soon as possible so they can approve the necessary changes.

No receipts necessary: How private lenders simplify the construction draw process

Many lenders require receipts as proof of completed work.

Park Place Finance pays draws on a reimbursement basis only based on your rehab budget and work completed on the property. As a result, we do not require receipts.

This simplifies and speeds up the draw process so investors aren’t stuck compiling and submitting extensive paperwork after each phase of the project.

Tips for managing draws in fix-and-flip projects

Effectively managing the draw process for your fix-and-flip will keep the project on track.

Let’s look at the best tips for managing your renovation draws.

Create a detailed project plan

Your comprehensive plan should include the budgets and timelines for each phase of work, including:

  • All renovations and repairs
  • Purchase price
  • Renovation costs
  • Holding costs
  • Selling expenses
  • Funding plan
  • Exit strategy
  • ROI estimate
  • Start and end dates
  • Key milestones
  • List of materials
  • Required labor
  • Permits and licenses

Your plan should align with the draw schedule to ensure the funds are available when you need them.

Understand the draw schedule

Make sure you fully understand your lender’s draw process, schedule, and requirements.

Knowing when and how you can request draws and what’s required of you at this time will keep your project timeline on schedule.

Park Place Finance allows borrowers to request a draw online with a brief form that includes:

  • Loan number
  • Property address and zip code
  • Borrower’s name, email, and phone number
  • Draw amount requested

Once submitted, a servicing team member will reach out to the borrower.

Maintain open communication with your lender

Keep your lender informed about your project’s process and any challenges you may face.

Regular updates build trust and transparency and allow the lender to help you more quickly if you experience issues with your timeline, schedule, or budget.

Document everything

Even if your lender doesn’t require detailed receipts to issue a draw, borrowers still should keep records of all completed work, including:

  • Photos
  • Contacts
  • Communication with contractors

The documentation will come in handy if any issues arise.

Regularly review your budget

Keep track of your project’s budget vs. your actual expenses to make sure the project is staying within budget.

If you stay on top of your budget, you can make adjustments as necessary before the expenses get out of hand.

Prepare for the unexpected

Build a contingency into your budget to cover any unexpected costs, which will prevent the need for additional financing or project delays.

It’s smart to anticipate delays and the potential for going over budget so you can prepare for these unforeseen circumstances and immediately alleviate them. 

Apply for a fix-and-flip loan with Park Place Finance

Your No. 1 partner in your fix-and-flip investment is a private lender.

A reputable lender will help you secure the financing you need and provide a simple, easy construction draw process so your project remains on track at all times.

Hard money lenders can also provide investors the flexibility they need to overcome any obstacle with their project.

Park Place Finance is your trusted hard money lender, with over $1 billion in loans funded across the nation.

Apply now for your fix-and-flip loan or call (866) 407-1599 to discuss your unique project scenario.

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