If this is your first time around working with hard money financing, you may not be too clear on what is allowed by hard money lenders. California lenders, for instance, do allow you to be paid for repairs if you complete the necessary paperwork.
When using hard money financing, you may have a few questions here and there, which is perfectly normal. One question, in particular, that most borrower or builders have is, can they be paid for repairs? Well, the short answer is yes. Generally, most lenders will allow this if you fill out what is known as a draw request.
A draw request, in essence, is a form that details the completed repair work. It is your job to ensure it is properly filled out and that any necessary copies are given to sub-contractors as well as submit the original form to your hard money lenders. California lenders will allow for payment or rather disbursement of funds after the work is properly inspected. It is important to note that payment is typically never in advance, as most lenders want to ensure the quality of the repair work first.
So now that you know that you can submit a draw request to hard money lenders, California especially, let us go over the draw request basics. For starters, some lenders will make this caveat a part of the loan itself. In other words, a select few lenders will allow for a 10% upfront disbursement during the loan closing. This small percentage is so that you can get started on the necessary repairs with proper funding. However, after this initial payment or disbursement, the rest of the repair work payments are traditionally paid to the contractors upon completion of the work.
If your lender does allow for the initial 10% when the loan closes, then moving forward it is important to know how to submit additional draw requests. For instance, it is highly recommended that you submit around four draw request each in 25% increments. Each draw request should include a detailed description of the work completed, the necessary amount needed, as well as any additional instructions for accessing the property for inspection. This will allow you to pay for completed work as it occurs and ensure that the entirely of the repair work that passes inspection is paid for. Moreover, you should submit all invoices and receipt for all work you or your contractors complete. It is important that these documents match or are in the neighborhood of the original bid. After all of this, you will have to complete a lien release and indicate where you want the funds to be disbursed. The draw request process from start to finish generally takes five to ten business days.
Ultimately, these draw requests will help you complete your rehab or construction project in a timely and seamless fashion. Thus, it is important to stay organized, keep all pertinent receipts, and plan ahead for the actual date of disbursement so that you do not experience any hiccups along the way.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.