The Quick Read: Hard money draws reimburse work you have already paid for, so the cash you must front equals the lowest point of your running balance between paying contractors and receiving each reimbursement, plus holding costs, fees, and a contingency cushion, rather than the first draw or the full rehab budget. Build that number before you make an offer, not after closing.
- Your cash need has five parts: cash at closing, the first-phase float, carry during the gap, contingency, and fees.
- The number that matters is the trough, the lowest point of your running balance, not the size of any single draw.
- A one-phase delay in reimbursement can raise your trough sharply, so test the plan against a slow lender.
- On most files, up to 100% of the rehab budget funds in draws against completed work. That is a rehab-budget figure, not a purchase loan-to-value figure.
- If the trough is bigger than your cash, you cut scope, re-phase, add a partner, or pass.
Why You Front Cash on a Hard Money Rehab
A draw is a reimbursement, not an advance. The lender holds the renovation money back, and you pay contractors first. The lender then releases funds after an inspector confirms the work is done.
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 reason is simple. A lender does not want to hand over the whole rehab amount and then hold a loan secured by a house that is still half-finished. The holdback keeps the property’s value ahead of the loan balance at every stage.
This is why “100% rehab financing” confuses new investors. Across the hard money programs we place files with, up to 100% of the rehab budget can fund in draws against completed work. The money exists. It just reaches you after the work does.
Purchase leverage is a separate matter. Fix-and-flip leverage on our network typically runs 93% of project cost at five or more completed projects, 90% at two or more, and 85% with fewer than two. Every tier is capped at 75% of after-repair value. Those are loan-to-cost figures, and they vary by lender, property, and experience. There is no true 100% purchase program, so your own cash shows up at closing as well as between draws.
Key Terms Defined
Draw: A release of rehab funds from the lender after completed work is inspected.
Holdback: The rehab money the lender keeps in reserve and releases in stages.
Float: The cash you carry out of your own pocket between paying for work and being reimbursed.
Trough: The lowest point of your running cash balance across the whole project. It is your true cash requirement for the build.
Carry: The cost of holding the property while you wait, including monthly interest-only payments and other holding costs.
Contingency: Extra budget set aside for surprises inside the work itself, such as hidden damage.
Reserve: Liquid cash you keep untouched, separate from contingency, so a late draw does not stall the job.
What Are the Five Cash Buckets?
Your total cash need is five separate buckets, not one. Investors who treat the down payment as the whole number are the ones surprised by reimbursement timing.
| Bucket | What it covers | Does the lender fund it? |
|---|---|---|
| Cash at closing | Your share of project cost, plus closing costs | No |
| First-phase float | Early work paid before the first draw | No, it is reimbursed later |
| Carry during the gap | Interest-only payments, utilities, insurance | No |
| Contingency | Surprises inside the scope of work | No |
| Fees | Draw inspections, wires, lender charges | No |
Carry deserves a second look. Terms on our network typically run 6 to 18 months, interest-only, with no prepayment penalty. Some hard money loans charge interest only on funds already disbursed. Others charge it on the full approved balance whether or not you have drawn. These conflict, so treat the interest basis as a loan-document item to confirm, not an assumption.
On contingency, a practitioner explainer on Medium suggests budgeting 10-15% over your planned draw amounts. Treat that as a market suggestion. Your own scope and the age of the property should set the figure.
Step-by-Step: How to Plan the Cash You Front Between Hard Money Draws
The method has five steps. Each one feeds the next, so do them in order.
1. Build a line-item scope of work. Break the rehab into categories such as roofing, electrical, flooring, and paint. A single line reading Interior gives an inspector nothing to verify. A contractor’s bid alone rarely satisfies a lender either, because the lender matches scope and cost to invoices at draw time.
2. Group the scope into inspectable phases. Each phase should end with work an inspector can see and measure. Lighter rehabs often suit about three draws, and major renovations about five, according to the same Medium explainer. Fewer draws mean fewer inspection fees but bigger gaps between funding.
3. Map the draw calendar. Place each phase on a timeline. Note which phases carry the heaviest spending, because cash needs peak there.
4. Estimate the real gap for each draw. The gap is the time from finishing work to receiving funds. It includes submitting the draw package, scheduling the inspection, lender review, and the wire. Ask your lender for its actual turnaround, then plan for the slow end.
5. Build the running-balance table. Record every payment out and every reimbursement in. The lowest point is your trough.
Most investors stop at step three and size cash to the largest draw. That misses overlap. You often start the next phase before the last one is reimbursed, so two phases of cost can sit on your balance at once.
Worked Example: Finding the Trough
Run the numbers on a modeled rehab with four equal phases. Every figure below is a percentage of the total rehab budget, and every input is an assumption for illustration, not a market fact. It assumes each phase is fully reimbursed and ignores fees, carry, and contingency, which sit on top.
The assumption that matters: reimbursement for each phase arrives after you have already spent 40% of the next phase’s cost.
| Event | Cash out | Reimbursement in | Running balance |
|---|---|---|---|
| Phase 1 work paid | 25% | 0% | -25% |
| 40% of Phase 2 paid | 10% | 0% | -35% (trough) |
| Phase 1 reimbursed | 0% | 25% | -10% |
| Rest of Phase 2 paid | 15% | 0% | -25% |
| 40% of Phase 3 paid | 10% | 0% | -35% |
| Phase 2 reimbursed | 0% | 25% | -10% |
The pattern repeats through Phase 4. The trough is 35% of the rehab budget, not 25% (one phase) and not 100% (the whole job). The last reimbursement returns the balance to zero, except for any final holdback the lender keeps until permits and sign-offs close.
Now stress the plan. Say the lender is slow, and reimbursement lands after 80% of the next phase is already paid. Phase 1 puts you at -25%. By the time Phase 1 is reimbursed, you have also paid 20% of Phase 2, so the trough becomes 45%. A modest delay added ten points of the rehab budget to your cash need.
Two cautions belong here. Many lenders hold back about 10% of the final draw until sign-offs close, so your last stretch of cash returns late. And the table above leaves out carry, which keeps running while you wait.
How Long Is the Gap, Really?
The gap is a pipeline of five steps, and each one can slip. Work finishes. You submit a draw package, which usually means a request form, invoices, receipts, and photos. An inspector verifies the work, either in person or through photos. The lender reviews. Then funds are wired.
Lender turnaround varies widely, so there is no universal number to plan around. Ask each lender for its actual process and its typical slow case. Then add a buffer for incomplete packages, failed inspections, and holidays.
Packaging matters as much as lender speed. Dated photos organized by line item, invoices that match the approved scope, and requests submitted as soon as a phase ends all shorten your float. A package sent back for missing paperwork restarts the clock.
How Can You Shrink the Gap?
You shrink the gap by making each phase smaller, cleaner, and easier to inspect. The shorter your float, the lower your trough.
- Re-phase the scope. Move early work into smaller phases so the first draw arrives sooner.
- Stage the heavy spending. Avoid putting your most expensive items back to back, because that is where the trough deepens.
- Batch work into inspectable units. An inspector cannot approve half a finished roof.
- Match contractor payments to draw receipt. A contractor-side educator at Sellers Little Helpers suggests weekly labor draws instead of a large upfront deposit. A big deposit also leaves you with less leverage mid-job and more exposure if the contractor stops working.
- Ask for the net-30 option on materials. Net-30 billing is common in construction, and it moves a supplier’s bill past your reimbursement date.
- Give your contractor assurance. A term sheet from a valid lender shows the money exists, which can make a contractor more willing to start without a large deposit.
- Ask for the full fee list. Request every draw, inspection, and wire charge in writing before you sign. Medium’s explainer puts inspections at roughly $100-$300 each, but your lender’s schedule is the one that counts.
One structure is worth knowing about. Some lenders pay a first draw at closing in exchange for more money down. That arrangement is the exception, and it trades a smaller float for a larger closing check, so run both versions of your plan before you choose.
What Are Your Options for Funding the Gap?
Own cash is the cleanest source. When it falls short, you have a handful of other tools, and each one adds cost that belongs in your deal analysis.
| Source | Cost | Risk | Best use |
|---|---|---|---|
| Own cash | Opportunity cost | Lowest | Core of your trough |
| Business line of credit | Interest on drawn balance | Moderate | Short, predictable gaps |
| Credit cards | Highest carrying cost | High if unpaid | Materials, small vendors |
| Partner capital | Share of profit | Relationship risk | Troughs beyond your cash |
The contractor-side educator at Sellers Little Helpers suggests a business line of credit to bridge the gap and adds that its interest should go into the deal analysis. That advice holds for every tool in the table. Float is not free, and a cheap-looking bridge can eat a thin margin.
Keep reserve and contingency separate when you count. Contingency is a budget line for surprises inside the work. Reserve is untouched liquidity for a late draw or a stalled inspection. Using one to cover the other leaves you short on both.
What Happens When Draws Go Wrong?
Draws go wrong in predictable ways. Each one changes your cash need, and each has a fix you can plan around.
| Problem | Cash impact | Fix |
|---|---|---|
| Late inspection | Trough deepens, carry runs longer | Hold reserve; schedule early |
| Partial approval | Unreimbursed share stays on your balance | Match phase scope to line items |
| Failed inspection | Reimbursement waits on rework | Photo-document and pre-inspect |
| Out-of-scope work | May not be reimbursed at all | Get scope changes approved first |
| Stored materials | Delivered but uninstalled items often are not reimbursed | Buy materials as installation nears |
Inspectors tend to look at the whole scope against overall progress, not only the line items in the current request. A weak Phase 2 can stall the Phase 1 release you were counting on.
What If the Number Is Bigger Than Your Cash?
When the trough exceeds your cash, you have five choices, and you should pick one before closing.
1. Cut scope. Remove work that does not move value, or defer it until after the first reimbursements.
2. Re-phase. Smaller early phases cut your peak.
3. Bring more cash. Delay the purchase or reduce how many projects you run at once.
4. Add a partner. Share profit in exchange for covering the trough.
5. Pass. A deal that works only when nothing slips is not a deal.
Passing is not failure. An under-capitalized rehab can stall mid-build, and a work stoppage costs more than most deals can absorb.
Planning Across More Than One Project
Troughs stack. If you run two rehabs at once and both are at peak spend in the same month, your cash need is the sum of two troughs, not one. Stagger starts so one project’s reimbursements arrive as another project’s spending ramps up.
Float is also tied up until reimbursement, so it limits how many rehabs you can run. Pay attention to how your lender tracks draws, per property or pooled. Pooled structures can change how much risk one stalled rehab adds to the rest. Lendmire’s piece How to Plan a Two-Step Cash-Out as a Rehabber Leaving Hard Money covers how rehabbers recycle capital between projects.
Go/No-Go Checklist Before You Make an Offer
- Do you have a line-item scope, not a single contractor bid?
- Have you grouped the scope into phases an inspector can verify?
- Do you know your trough in percentages of the rehab budget, with a slow-lender version?
- Is the carry added on top, with the interest basis confirmed in writing?
- Does your cash cover the trough, a contingency of your own sizing, and a separate reserve?
- Have you seen the lender’s full fee list?
- Is your contractor’s payment schedule matched to draw receipt?
- Do you have an exit plan for when the loan term ends?
If any answer is no, fix it before you commit.
Planning the Exit, Too
Hard money is built for a short runway. Many investors refinance out of it into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. DSCR is the debt service coverage ratio, which compares a property’s rent to its monthly housing payment. Lendmire’s complete DSCR loans guide explains how that works. Line up the exit when you line up the hard money, because the refinance must cover your purchase, renovation, and carry before any cash comes back out.
Frequently Asked Questions
Are hard money draws advances or reimbursements?
They are reimbursements. You pay for the work, submit documentation, and the lender releases funds after an inspector verifies completion. A few lenders pay a first draw at closing for more money down, but that is the exception.
How much cash do I need beyond the down payment?
Much more than the down payment and closing costs. Add your first-phase float, carry during the gap, contingency, and inspection and wire fees. Build a running-balance table and use its lowest point as the core number. Leverage and cash at closing vary by lender, property, and experience.
How long does a draw take to arrive?
It depends on the lender and on how complete your package is. The pipeline runs from finished work through submission, inspection, review, and wire. Ask your lender for its real turnaround and plan around the slow end, not the best case.
Is a business line of credit a good way to cover the gap?
It can be, for short and predictable gaps. Interest on the drawn balance is a real cost, so it belongs in your deal analysis. Do not use it to hide a trough your cash cannot support.
Are reserve and contingency the same thing?
No. Contingency is a budget cushion for surprises inside the work. Reserve is untouched liquidity for timing problems like a late draw. You need both.
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. As a broker, it arranges hard money financing through select lenders across 41 markets, including Washington, D.C., and nothing here is a commitment to lend. A cash trough you calculate before closing is inexpensive protection for a rehabber, because it shows the shortfall before it becomes a problem.
For current guidelines and terms, see Lendmire’s hard money loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Medium: Rehab Draws & Inspections
2. Sellers Little Helpers: The Contractor Deposit Problem in Fix and Flip
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 Cash a 2-4 Unit DSCR investor Brings After a Low Appraisal · DSCR Cash-Out Now vs Waiting for Hard Money and Rehab Card Payoff · How to Decide Between Selling and Refinancing a Short-Term Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.