Short-term real estate financing for acquisition, value-add, and transitional scenarios. When to use bridge loans and how to exit cleanly.
A rehab budget submitted to a lender is not an estimate, it is a commitment. Funds release in draws against the line items you submitted, so a budget that is vague, optimistic or missing categories creates problems the moment work begins. A fundable budget is line-itemized by trade, priced against real contractor bids rather than per-square-foot rules of thumb, sequenced to match a draw schedule, and carries a contingency of at least ten to fifteen percent. The most expensive mistake investors make is scoping a property before the walls are open, then discovering the real condition after the loan is closed and the budget is locked.
Line items by trade: demolition, structural, roofing, mechanical, electrical, plumbing, insulation, drywall, flooring, kitchen, baths, paint, exterior, landscaping, permits and contingency. Each with a dollar figure tied to a bid or a documented quote.
Lenders fund against these lines. A budget with three lines and a total gets treated as unsupported, which either reduces the approved rehab amount or delays approval while the underwriter asks for detail you could have provided up front.
Ten to fifteen percent on a cosmetic renovation, and twenty percent or more on anything involving structural work, older housing stock, or a property you could not inspect before purchase.
Contingency is not padding. On pre-1940 stock in Philadelphia, Cleveland or Baltimore, knob-and-tube wiring, galvanized supply lines and hidden water damage appear regularly. A budget without contingency is a budget that will need a change order, and change orders slow draws.
Funds release as milestones complete and get inspected. You fund the work first, then request reimbursement. That means your budget has to be sequenced so you can carry each stage before the draw arrives.
Investors who plan around receiving money before doing work stall in week three. Understand the draw frequency, the inspection turnaround, and how much the lender will advance per stage before you sign, because a slow draw process on a rehab-heavy project costs more than a rate difference.
Scoping from photographs rather than a walkthrough. Using per-square-foot averages instead of trade bids. Omitting permits, dumpsters, utilities during construction, and carrying costs. Assuming the contractor’s verbal number is the real number.
The other recurring error is scoping only what is visible. Roof, mechanical systems and foundation drive the largest surprises, and they are the items least visible in a walkthrough.
In low-basis markets this is routine rather than exceptional — Cleveland, Dayton, Toledo, Akron, parts of Detroit, Scranton and Erie regularly produce deals where renovation costs more than acquisition.
Some capital sources decline that structure outright regardless of deal quality, because their leverage model assumes acquisition is the larger number. Sources that fund it size on total project cost with a ceiling tied to ARV. Confirming which you have before going under contract avoids a late decline.
Line-itemized by trade with dollar figures tied to bids or documented quotes. A lump-sum total gets treated as unsupported and slows or reduces approval.
Ten to fifteen percent on cosmetic work, twenty percent or more on structural work, older stock, or a property you could not inspect before buying.
Usually not. Most programs reimburse the borrower after work is completed and inspected, which means you carry each stage before the draw arrives.
It varies by capital source, typically a few business days from inspection to funding. Draw speed matters more than the rate on a rehab-heavy project and is worth comparing directly.
Change orders are usually possible but they slow the draw process and may require re-approval. Getting the scope right before closing is far cheaper.
This is what contingency is for. If the overrun exceeds contingency you are looking at a change order, additional capital, or scope reduction — all of which cost time.
Many programs fund the full rehab budget in draws, subject to overall ceilings on total project cost and after repair value.
For initial screening only. For a budget you submit to a lender, use actual trade bids. Per-square-foot averages routinely miss the items that cause overruns.
Some capital sources will not fund that structure at all. Others size on total project cost with an ARV ceiling. Confirm before you go under contract, particularly in low-basis Midwest markets.
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