Renovation scope of work and draw schedule for a value-add loan

What the lender is checking

The lender wants to know that the plan is complete, that the budget is realistic for the market, and that the money goes out only as the work is done. The improvements are part of the value the loan rests on, so the lender checks the plan before closing and the progress before every draw. Your lender's own forms and rules come first; ask for them early and fit your numbers into them.

The scope of work

A scope of work lists every piece of work, where it happens and how much of it there is. Organize it so a lender's inspector can check it on site:

• By unit or floor plan: the work in one unit and the number of units that get it.
• By building and area: roofs, exteriors, stairs and balconies, laundry, clubhouse, parking, landscaping.
• By trade: roofing, plumbing, electrical, flooring, paint, cabinets.
• With a quantity and a unit for each line: square feet, linear feet or each.

List the bones first: roof, structure, plumbing, electrical, heating and cooling, water damage and safety items. Then common areas and site, then unit repairs, then cosmetic work and upgrades. Items a specialist still has to inspect go in as allowances, named as such, until the bid arrives.

The budget

Price each line at the middle of its range from your cost table, or at the contractor bid you chose. Then add a contingency for what nobody could see, and state it as its own line with its percentage. Do not pad the lines themselves: hidden padding makes every line look high and leaves the lender guessing what the real cost is. One stated contingency is easier to defend. An allowance pending inspection can be carried at the high end of its range, since nobody has priced it yet.

Use the same numbers your offer used. A lender budget that is far above the budget in your deal model raises the question of which one is right. How to estimate renovation cost per unit shows how to build the numbers.

The draw schedule

A draw schedule says when each part of the holdback is paid and what must be finished first. Lenders usually pay after an inspector checks the work, and usually not for materials still sitting in a truck. A schedule that works for most value-add plans:

1. Bones and safety work first, because everything else depends on a dry, safe building.
2. Common area and site work.
3. Unit repairs.
4. Upgrades and cosmetic work.
5. A final retainage, released when all work is done and checked.

Size each draw by the budget that phase holds. A phase that holds a large share of the budget is better paid in progress draws, such as half done and done, so no single draw waits on months of work. Keep the number of draws small: every draw is an inspection, a request and a wait.

Change orders

Work will change once walls are open. Lenders often want a change approved before the work starts, not after. Price each change the same way as the original lines, from the same cost table or a bid, and pay for it from the contingency first. A change that does not fit in the contingency needs a talk with the lender before it starts.

Before you send it

• Every line has a place, a trade, a quantity and a price.
• Bones are listed first, and allowances are labeled.
• The contingency is one stated line, with its percentage.
• The total matches the renovation budget in your deal model.
• The draws add up to the total, and the last draw is the retainage.
• Units not walked are priced like the walked units of their floor plan, and the budget says so.

How DoorWalk does it

DoorWalk's lender report, Lender scope and budget, comes from the same walk as the buyer and seller reports. It shows the scope of work by unit, area and trade, bones first, with a budget at the buyer report's middle prices plus each stated contingency: 10% on walk work, and 10% on the improvements you chose when there are any, never higher than the buyer report. Allowances pending inspection are carried at their high end, and a contractor bid you chose replaces the estimate for its lines.

The draw schedule follows the order above: bones, common areas and site, units, then upgrades and cosmetic work, each sized by the budget it holds. A phase bigger than 30% of the budget is paid in progress draws, there are at most 6 draws, and the last is a 10% retainage released when all work is done and checked. A budget under $1,000 is one draw. Changes are added as change orders priced from the same cost table. You save the report as a PDF, and the download holds the line items as a CSV file for the lender's own forms.