When it comes to real estate investing, budget management is critical to portfolio and business success. For new build or fix and flip investors, overspending on materials or labor can evaporate profit margins, slow business growth, or worse, leave you in financial despair. That is why understanding and optimizing draw request processes are essential to a flourishing real estate investment company.
What is a Draw Request?
Draw, or construction/rehab draw, requests are formal requests submitted throughout a property project to access funds from a construction loan. Construction draw processes typically include a lender, builder, and borrower. Since construction (or rehab) loans are typically paid out in installments throughout the course of a home project–rather than in a lump sum–a draw schedule is agreed upon. A draw schedule outlines the general contractor payment schedule (i.e., when funds will be distributed to allow builders to pay for materials and labor).
The Payment Draw Process
The draw schedule divides the project and payment distributions into milestones or phases. The general contractor, project manager, or borrower submits a detailed report of the work that has been completed at certain points throughout the project. These reports provide proof that work is being completed and funds are being allocated in the appropriate way. If everything checks out, and specific defined “milestones” have been met, the next payment installment will be released.
Draw Request Documents
There are more to loan draw form requests than one or two documents. In fact, several documents must be submitted to a lender to access further funding. The purpose of these draw request documents is to provide clear evidence of completed work and the costs associated with reaching a new phase of the construction process.
Draw amounts are determined specifically by the breakdown of costs. Meaning, more in-depth and well-formulated draw request documentation typically leads to better and faster payment installments for contractors and borrowers. While lenders can request different documents based on the scope or circumstances of a project, the standard supporting construction loan draw documents include:
Draw amounts are determined specifically by the breakdown of costs. Meaning, more in-depth and well-formulated draw request documentation typically leads to better and faster payment installments for contractors and borrowers. While lenders can request different documents based on the scope or circumstances of a project, the standard supporting construction loan draw documents include:
- Invoices & Receipts: These are an important part of any draw request. Project managers should keep itemized receipts and invoices pertaining to costs for things like:
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- Materials
- Equipment rentals
- Permits
- Labor
- Miscellaneous costs
- Schedule of Values: In real estate drawings, a schedule of value document outlines the value of each “milestone” or phase of work in a construction project. The schedule of values is submitted with each new loan draw request as an outline for how much should be paid out based on the current work completions.
- Lien Releases: In some states, lien releases are required. The lien release is a signed document by a contractor or supplier, indicating they have been paid in full for the work completed during a specific period. This documentation helps protect the borrower and lender from paying multiple times for the same work.
- Construction Contracts: Construction contracts outline any agreements between the property owner and builders/vendors, including the AIA Notice to Proceed, project scope, timeline, and estimated costs.
- Change Orders: Change orders are detailed documents that outline any changes made to original construction contracts, including:
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- The scope of work
- Schedule
- Pricing
On average, traditional draw requests, form submissions, and funding distribution take between 3-5 business days. However, with FACo Snap Draws, which we’ll discuss later, that process can be sped up significantly.
Tips for Optimizing Your Construction Draw Request Process
Now that we’ve defined draw requests and the most common documents required, let’s discuss how to optimize your draw request process. In doing so, investors can streamline projects, reduce costs, and make the most of their investment property.
Top tips for construction draw process optimization include:
Top tips for construction draw process optimization include:
- Detailed Budget Planning: It cannot be overstated the benefits that come from a comprehensive and well-formulated initial budget. By working with trusted and skilled industry professionals (contractors, appraisers, and tradesmen), you can gain expert insights into the most cost-effective and accurate estimates when it comes to materials, labor, permitting, inspections, and other contingencies.
- Routine Budget Reviews: In an ideal world, everything would go according to plan. Unfortunately, things rarely go as planned in the construction real estate industry. That is why it is pivotal for investors to perform routine budget reviews that include:
- Budget reviews of cost projections compared to actual expenses.
- Expense audits to review cost-effectiveness, ensure compliance with the budget, and uncover any discrepancies.
- Management and reviews of change order requests to accurately identify and relay any budget impacts to your lender.
- Enhance Your Schedule of Values: To avoid any discrepancies in the scope of work completed when submitting a draw request, enhance your schedule of values submission. Provide photos and/or videos of completed work, alongside any and all correlating receipts or invoices.
- Don’t Let the Little Things Slip Through the Cracks: Experienced investors know to itemize, document, and submit any and all costs associated with your construction process. An optimized construction draw request includes the little costs and small details. From a single screw to a garage door, ensure your loan draw addresses ALL costs!
- Simplify the Review Process for Lenders & Draw Inspectors:
Oftentimes, investors miss out or slow payments because lenders or draw inspectors cannot easily itemize and identify scopes of work. To eliminate this burden, you can simplify the review process by:
- Ensuring all temporary and rough work (excavation, rough electric and plumbing, insulation, septic tank installation, etc.) is documented using progress and completion photos before they are covered.
- Create easy roof access for inspectors to readily and accurately assess progress and completed work.
- Make sure all appliances and property additions on site are installed and completed before submitting a draw request for reimbursement.
Streamlining the Draw Request Process with Snap Draw DIY
By understanding and optimizing the draw request process, investors can help cut costs, simplify funding distribution, and find real estate investment success. Finance of America Commercial (FACo) has gone above and beyond to help borrowers streamline and optimize their draw request process with Snap Draws DIY.
Snap Draws cut out the middle-man, putting you in control of the loan draw process. Using Snap Draws via the portal app, investors and contractors can:
- Quickly take and submit photos for construction draw requests.
- Track the progress of your draw in real-time.
- Access and utilize construction draw request document templates.
- Speak to an in-house draw request specialist.
Best of all, draw requests submitted through FACo’s Snap Draw DIY app are processed quickly, and money can be distributed within just 24 hours*! With reliable construction loans and fix and flip financing programs, along with streamlined draw request processes, it’s no wonder FACo has become a real estate lending leader over the past decade.
If you’re ready to optimize your draw request processes and elevate your investment portfolio, let the expert team at FACo help. CLICK HERE to schedule a FREE consultation today.
If you’re ready to optimize your draw request processes and elevate your investment portfolio, let the expert team at FACo help. CLICK HERE to schedule a FREE consultation today.
Authored by Bianca Montalvo
SEO copywriter and strategist
*Requires 3rd party mobile app download. Currently available for one unit properties only. Time from full document submission to settled wire averages 24 hours but may vary. Release of funds is based on clear photographic evidence of completed work matching the request.
