The Quick Read: The cash a rehabber needs between hard money draws is the peak cumulative gap between what the contractor is owed and what the lender has reimbursed, plus carry and a contingency cushion. Most private lenders reimburse after verified work, so the borrower funds each phase first. The gap is almost always bigger than the down payment alone suggests.
- Rehab money sits in a lender-controlled holdback at closing. It is not wired to the borrower.
- Draws reimburse finished, inspected work. Nothing is paid ahead of the work.
- Cash needed = down payment + closing costs and fees + largest single phase fronted + carry + contingency + delay cushion.
- Fewer, larger draws raise the cash you must hold. More, smaller draws lower it.
- The exit also needs cash. A refinance that appraises short means you bring money to the payoff.
How Do Hard Money Draws Create a Cash Gap?
Draws create a gap because the lender pays after the work is done, not before. At closing, purchase funds go out and the rehab budget goes into a lender-controlled holdback. Yieldstack explains that this budget is not wired to the borrower and comes out in stages called draws, and that nearly every fix-and-flip loan reimburses after the work is finished. Your own cash or your contractor’s credit pays for each stage first.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
The sequence runs the same way on most files:
1. The purchase closes and the rehab budget goes into holdback.
2. The contractor completes a phase, and someone pays for it.
3. The borrower submits a draw request with photos, receipts, and lien waivers.
4. The lender orders an inspection and reviews the request.
5. Funds are released, less any holdback.
6. The borrower starts the next phase with whatever cash is left.
The gap lives between step 2 and step 5. The longer that stretch, the more cash you need.
Loan size matters here too. On Lendmire’s network, fix-and-flip leverage runs 85% of project cost with fewer than two completed projects, 90% at two or more, and 93% at five or more, each capped at 75% of after-repair value. Up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase LTV. There is no true 100% purchase program. All of this varies by lender, property, and experience, and none of it is a commitment to lend.
Key Terms Defined
Draw: A release of rehab funds from the lender’s holdback after a phase of work is verified.
Holdback: Money the lender keeps in reserve, either the whole rehab budget before it is drawn or a slice of each draw kept back until the work is complete.
Lien waiver: A document from a contractor or supplier stating they have been paid for work or materials and will not file a claim against the property.
Loan-to-cost: The loan amount as a share of the project’s total cost (purchase plus rehab), rather than a share of value.
After-repair value (ARV): The estimated value of the property once the planned work is finished.
Carry: The monthly cost of holding the project while it is not producing income, mostly interest and upkeep.
What Is the Formula for Cash Between Draws?
The formula is simple to write and easy to underestimate in practice. Add six pieces:
Cash needed = down payment on project cost + closing costs and fees + the largest single phase you must front + carry for the real timeline + contingency + a delay cushion.
Take each term in turn.
Down payment on project cost. This is the equity slice the loan does not cover. It scales with the tier you qualify for, and it comes due at closing.
Closing costs and fees. These are due at closing as well, and they do not reduce the gap. They sit on top of it.
The largest single phase you must front. This is the real driver. Work through the draw schedule and find the biggest amount you will owe before a reimbursement lands. That is your peak exposure, not the first phase and not the average one.
Carry. Interest-only payments, utilities, and insurance keep running while you wait. Yieldstack notes that draw speed, inspection cadence, and whether interest accrues on undrawn funds decide your real carry cost.
Contingency. How much to hold depends on the job: lower cushions tend to fit cosmetic work, and higher ones fit larger or less certain scopes. Treat 10% as a floor and move up as scope uncertainty grows.
A delay cushion. Hold extra for a schedule slip.
How Does the Peak Gap Actually Work?
The peak gap is the highest point of cumulative cash you have out of pocket at any moment. It is usually not the first phase. Run this as an illustration, with phases expressed as shares of the rehab budget rather than dollars.
Say a rehab splits into four phases: 20%, 30%, 30%, and 20% of the budget. The first draw reimburses phase one only after the phase is complete and inspected. While you wait, you owe the contractor for phase two as well, if the contractor starts the next phase before the wire lands. Your cash out of pocket at that moment is phase one still waiting on reimbursement plus phase two underway.
Three things move that peak:
- Phase size. A 50% first phase means you front half the budget before a dollar comes back. Splitting it into two 25% stages cuts the exposure sharply.
- Turnaround time. The longer from request to wire, the more the next phase overlaps with the last one.
- Holdbacks. Each release is smaller than the request, so each phase leaves a small residue unreimbursed.
Agreeing on phase size and draw timing with the contractor costs nothing but a conversation before work begins.
How Do Holdbacks and Reimbursement Rules Change the Math?
Holdbacks shrink every release, and the strictness of the reimbursement test decides how much of each phase you carry. The federal FHA 203(k) program is not hard money or DSCR investor loans, but its public forms show the logic in writing, so they make a useful reference point. Private lenders vary.
HUD’s Draw Request Form 9746-A says no construction item can be paid for unless the work is acceptably installed. Materials sitting on site cannot go in the draw request. The same form says that once documentation is accepted, the escrow release, less a 10% holdback, should occur within 48 hours. HUD’s Borrower’s Acknowledgement adds that the 10% holdback on each draw protects the lien position and assures the work is properly completed, and that no draws can be made until required permits are issued.
Three consequences for your cash:
- Uninstalled materials are on you. A long-lead item such as backordered cabinets ties up your money until it is installed and inspected.
- Holdbacks stack. If each release keeps back a slice, the last of that money returns only at completion.
- Permits gate the first draw. If release depends on permit sign-off, a permit delay is a funding delay.
Treat 10% as a reference point, not a rule. Private hard money varies on holdback size and on whether it applies to each draw or only the final one. Ask before you close.
Where the Rule Breaks: Edge Cases
The general rule is that you front each phase and get reimbursed later. Several situations bend it.
Partial completion. HUD’s Handbook 4240.4 allows partial release by percentage of line-item completion. Some private lenders pay by percentage and some wait for a full phase. If yours waits, your float is larger.
Scope changes. A scope that shifts between the statement of work and the start of work can leave new repairs outside the approved budget. The next draw then does not count them, and you need cash outside what was budgeted. Approved budget lines cap what gets reimbursed.
Contingency lines. Under the federal template, partial release of contingency items is unacceptable. Private lenders differ, so confirm whether your contingency is drawable or must be funded from your own pocket.
Lien-period retention. The HUD acknowledgement allows retention for a period not to exceed 35 days, or the time required by law to file a lien, whichever is longer. Expect something similar to ripple through any lender’s final draw.
Zero-out-of-pocket structures. Some investors try to model projects with no personal cash beyond the down payment. The risk is that one delay wipes out the project. Model how much cash you would need if the lender does not fund exactly as expected.
Why Does the Exit Need Cash Too?
The exit needs cash because the rehab loan has to be paid off, and a refinance may not cover it. Hard money terms run 6-18 months, interest-only, so the clock keeps running while draws process. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. Delays raise holding costs and push the refinance back.
Work the exit backward. The new loan is the lender’s cap times the appraised value. Cash back is that new loan minus the payoff minus exit costs. If that number is negative, you bring cash to the payoff.
On the DSCR side, cash-out refinances top out around 75% LTV across most of the network, with about six months of seasoning as the common expectation. Coverage of 1.00 is where select programs start. Select lenders take coverage below 1.00 with leverage and terms adjusted. Reserves commonly run around six months of PITIA and vary by lender, leverage, and loan size. Cash drained mid-rehab leaves less for those reserves, which raises the risk of a failed exit.
Clearing 1.00 coverage is also not the same as positive cash flow. DSCR compares rent to the monthly payment only. Repairs, vacancy, management, and capex sit outside it. The complete DSCR loans guide walks through how the ratio is built. For the equity side of the exit, Lendmire’s piece How Much Equity a Rehab Needs for a DSCR Cash-Out to Retire Hard Money covers what the refinance test requires.
How Do You Shrink or Bridge the Float?
You shrink the float by changing when you owe money, and you bridge what remains with cash you already hold. The tactics that cost nothing come first.
1. Shrink the first phase. Sequence the scope so the first stage is small and verifiable.
2. Align contractor payment with the draw cycle. Agree on payment terms that follow reimbursement rather than precede it where the contractor will allow.
3. Request draws as soon as a phase qualifies. Have photos, receipts, and lien waivers ready the day the work finishes.
4. Order materials with installation in mind. Avoid paying for long-lead items months before they can be installed and inspected.
5. Hold a separate delay reserve. Keep it apart from the contingency so one does not drain the other.
Credit cards and other short-term credit can bridge a gap, but they add cost, and they fail at the moment a draw is late and balances are highest. Treat them as a last resort, not part of the plan.
What Should You Ask the Lender Before Closing?
Ask questions that turn the formula into numbers. The answers change the size of your float more than any other single choice.
- How long does a draw take from request to wire?
- How are inspections ordered, and what do they cost per draw?
- How many draws are allowed per month?
- Is a holdback taken from each draw, or only the final one?
- Does interest accrue only on funds already disbursed?
- Are partial completions reimbursed by percentage?
- Is contingency drawable?
- Does release depend on permit sign-off?
Some market sources report request-to-funding anywhere from a few days to a couple of weeks, with per-draw inspection fees in the low hundreds of dollars. Treat those as market-wide figures from lenders, not Lendmire’s network. On Lendmire’s network, terms vary by lender, property, and experience, so get each answer in writing for the specific file.
Light, Medium, and Heavy Rehabs: How the Float Scales
The float scales with scope, and with how uncertain the scope is.
| Rehab type | Draw count | Float risk | Contingency posture |
|---|---|---|---|
| Light cosmetic | Few, larger draws | Large first phase | Lower end of range |
| Mid-size | Several draws | Moderate peak | Middle of range |
| Heavy or structural | Many, smaller draws | Change-order risk | Upper end of range |
Light jobs often use fewer draws, which means a bigger front-loaded gap relative to the budget. Heavy jobs have more draws but more uncertainty, so a surprise phase can overrun the approved line. Neither is automatically safer. If you run overlapping projects, they draw on the same reserve, so size the cash for the combined peak, not each job alone.
For a deeper look at the other side of the leverage tradeoff, see Lendmire’s article How Much Equity a Top-Leverage Hard Money Rehab Needs for DSCR Cash-Out.
Pre-Closing Liquidity Checklist
1. List every phase as a share of the rehab budget, in order.
2. Find the largest amount owed before a reimbursement lands. That is the peak gap.
3. Add the down payment on project cost, closing costs, and fees.
4. Add carry for the schedule you expect, plus a 30-45 day slip.
5. Add contingency at 10% to 15% of the rehab, higher for uncertain scope.
6. Add the exit cushion: reserves and a possible shortfall at the refinance appraisal.
7. Compare the total to the cash you can actually reach without borrowing.
If the total exceeds your cash, shrink the first phase, trim scope, or move to a lower tier of leverage with more equity in the deal. Do not close and hope the draws arrive on time.
Frequently Asked Questions
How much cash do I need between hard money draws?
Enough to cover the largest amount you owe before a reimbursement arrives, plus carry and contingency. The peak gap, not the first phase, sets the number. Splitting a large phase into smaller stages lowers it. A 10% to 15% contingency is a common planning range from investor commentary, though scope uncertainty can push it higher.
Do I need cash before the first draw?
Yes. The rehab budget sits in holdback at closing and comes out in stages after verified work. Your down payment, closing costs, and the first phase are all yours to fund. Up to 100% of the rehab budget funds in draws against completed work, but that is reimbursement, not an advance.
Does a higher leverage tier mean I need less cash?
It lowers the down payment, not the float. Leverage tiers on the network run 85%, 90%, or 93% of project cost depending on completed projects, each capped at 75% of ARV. Reimbursement timing is the same at every tier, so the gap between draws does not shrink. These figures vary by lender, property, and experience.
What if an inspection fails or a draw is delayed?
You carry the gap longer, and your contractor may wait or stop. Interest and holding costs keep running. This is why the formula includes a delay cushion. Underwriting a 30-45 day slip as the base case is a conservative habit that keeps one delay from ending the project.
Can I count materials on site toward a draw?
Usually not. The federal template pays only for work acceptably installed, and many private lenders follow similar logic, though terms vary. Plan to fund long-lead materials yourself until they are installed and inspected.
Does this cash also affect my DSCR refinance?
Yes. Cash drained mid-rehab leaves less for reserves and for any payoff shortfall at the refinance appraisal. Reserves commonly run around six months of PITIA on DSCR files, varying by lender, leverage, and loan size.
Next Step
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Reach the team at 828-256-2183. Program details are subject to lender guidelines, and nothing here is a commitment to lend.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
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References
1. Yieldstack, Fix and Flip Draw Schedules
2. HUD Draw Request Form 9746-A
3. HUD 203(k). Borrower’s Acknowledgement 92700-A
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much a Low Appraisal Changes Cash to Close on a DSCR Purchase · How Much an Insurance Increase Moves an Airbnb DSCR Ratio · DSCR Cash-Out Now vs Waiting for Hard Money and Rehab Card Payoff
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.