When it comes to funding real estate rehabs, draw schedules are a critical piece of the puzzle. They determine how and when funds are released throughout a project — but too often, investors underestimate the risks that come with a poorly structured draw schedule.
If not managed correctly, draw schedules can put both lenders and investors at risk, leading to project delays, financial strain, or even unfinished rehabs.
Let’s break down the hidden risks and how to structure draw schedules the right way.
What Is a Rehab Draw Schedule?
A draw schedule is a payment plan that outlines when funds will be released during a rehab project. Instead of giving the borrower the full amount upfront, lenders disburse funds in phases — usually tied to completed milestones like demolition, framing, or finishes.
On the surface, it seems simple. But how you design that schedule can make or break a deal.
The Hidden Risks Investors Overlook
1. Front-Loaded Draws
If too much money is released upfront, borrowers may not have the discipline to allocate funds correctly. In worst cases, money can run out before critical work is complete, leaving lenders exposed and properties unfinished.
2. Overestimating Progress
Without proper inspections, borrowers may request draws for work that isn’t fully complete. Even small discrepancies can snowball, putting the project behind schedule and increasing costs.
3. Contractor Walk-Offs
If contractors are paid ahead of actual progress, there’s a risk they walk away without finishing. This leaves investors scrambling to hire replacements — often at higher costs and longer timelines.
4. Unexpected Change Orders
Rehabs rarely go exactly as planned. Hidden damage, material price increases, or design changes can eat into budgets. If the draw schedule doesn’t account for flexibility, borrowers may run short of cash mid-project.
5. Timeline Gaps
Delays between inspections, approvals, and disbursements can halt work altogether. A project waiting weeks for the next draw can create major holding costs and frustrate both lenders and borrowers.
How to Structure Draw Schedules the Right Way
1. Tie Draws to Verified Milestones
Each disbursement should be linked to a specific, verifiable stage of progress. Require inspections or photos before releasing funds.
2. Hold Back a Contingency
Reserve 10–15% of the total rehab budget until the project is fully complete. This ensures contractors finish strong and protects against walk-offs.
3. Break It Into Manageable Phases
Instead of a few large draws, create smaller, milestone-based draws. This reduces risk and keeps borrowers accountable throughout the process.
4. Build in Flexibility
Allow for minor adjustments if unexpected costs arise — but require documentation and justification. This keeps projects moving without letting costs spiral out of control.
5. Prioritize Communication
Clear, fast communication between borrower, lender, and contractor prevents timeline gaps. Automated reminders and standardized forms can keep the process smooth.
The Bottom Line
A rehab draw schedule isn’t just paperwork — it’s risk management. When structured properly, it protects lenders, keeps borrowers disciplined, and ensures contractors deliver on time.
For investors, it means fewer surprises, more predictable timelines, and projects that stay on budget.
If you’re funding or managing rehabs, don’t just accept a cookie-cutter draw schedule. Take the time to structure it right — because your capital, timeline, and returns depend on it.
