Rehab draws with a HML

[Kevin Mcilnay]

Okay, I'm having a hard time understanding how draws work with a rehab loan from a hard money lender.  The way I understand it is:  I have to pay for the work initially.  Then I apply for a draw and provide invoices. They inspect the work, then they reimburse me with money I have to pay back to them anyway??  If I could afford to pay for the rehab myself, why would I need a hard money lender in the first place?  None of this is making sense to me right now.  Any help is appreciated.  

[Evan Polaski]

@Kevin Mcilnay, as others mentioned, the typical route is you pay the draw out of pocket and reimburse yourself, so you can pay the next draw.

Depending on your contractors, the contract with them, and your lender, you can make it work where the draws go directly to the contractors, but the contractors need to be okay with due on 30, versus due immediately terms on their invoices.  Most professional contractors will accept that, but most professional contractors cost significantly more.

I would make sure you are very clear with your contractors up front that you ONLY pay invoices with full receipts.  I have dealt with some that I had to make their invoice for the contractor so they bank would reimburse me with the draw.  This was the biggest PITA of dealing with bargain basement contractors and HMLs.