Draws, inspections and the holding costs nobody budgets

Two things catch first-time flippers, and neither is the purchase price. One is that renovation money arrives after you have spent your own. The other is that time costs money whether or not anything is happening.

How draws actually work

The renovation portion of the loan is not handed over at closing. It sits with the lender and is released in stages as work is completed and verified.

A typical cycle: you complete a stage, you request a draw, an inspector visits or reviews evidence, the lender approves, funds are released. Each of those steps takes days, and the total runs anywhere from a few days to a couple of weeks depending on the lender and the inspector’s diary.

Meanwhile the contractor wants paying. So you are funding each stage from your own cash and being reimbursed afterwards.

Budgeting the gap

Work out your largest single stage — usually the one with materials and a big trade payment together — and make sure you can fund it twice over without the reimbursement arriving. That gives you room for one delayed draw without the project stopping.

Running out of cash between draws is the most common way a viable project stalls. The contractor moves to another job, the schedule slips by weeks, and every one of those weeks costs holding.

Holding costs, itemised

• Interest on the loan, accruing on what has been drawn, every day.
• Insurance, which on a vacant property under renovation is more expensive than standard cover and is sometimes underestimated by a wide margin.
• Property taxes, accruing whether or not anyone lives there.
• Utilities, which you need on for the trades regardless.
• Loan extension fees if you run past the term, which many flips do.
• Maintenance and security on a vacant property.

Individually modest, collectively substantial across a project that runs three months longer than planned. On a thin margin, a delayed flip is where the profit goes.

Why Treasure Valley projects run long

Predictable reasons, all local and all worth planning for. Trade availability is genuinely tight when contractors are busy with new residential construction, and a flip competes for the same crews as a subdivision that books them for months. Permitting timelines vary between jurisdictions in the valley. Material lead times on anything ordered rather than stocked have been unreliable.

And the oldest reason: what is found once walls are open. Older Boise Bench and downtown Nampa housing stock holds surprises — knob-and-tube, undersized panels, failed drain lines, foundations that have moved.

Contingency, in two places

Money and time. A budget contingency absorbs the surprise behind the wall. A schedule contingency absorbs the three weeks waiting for the electrician.

Investors reliably build the first and reliably forget the second, which is how a project with an adequate budget still loses money — it was adequate for four months and the job took seven.

A lender reading a plan with both built in sees an investor who has done this before, which affects terms as well as approval.