Replies

1. 
   gdavis62 | Sep 28, 2004 03:38pm | #1

   It will often depend on what the lender will allow.  Many banks will only do draw payouts based on work completed.

   Here is a draw schedule a bank likes to have: one, when foundation is complete and capped, two, when the house is roofed and fully weathered in with exterior openings closed, three, when drywall is complete, and four, you're done.

   If there is no financing, then that is out the window, and it is whatever your client will go along with.

1. 
   BrianT | Oct 02, 2004 02:59am | #2

   Hey thanks Bob!

   But nothing up front? What do you do about odering lumber? my lumberyard here already went up on the price of lumber 800.00 and said the only way to lock it in  was to pay the 18K up front. same with the trusses and steel. I just can't quite squeeze that. What do you think?

2. 
   WayneL5 | Oct 02, 2004 03:59am | #3

   Here's the draw schedule the contractor used when he built a house for me.  He said money got a little tight on the first round because he had to switch concrete suppliers and couldn't get 30 day to pay like he normally got with his regular supplier.  So, he asked me to pay the first payment before the bank gave me the draw, which I was happy to do since we were working well together.

   He asked for nothing up front.

   He's a small contractor, so I wouldn't necessarily call this schedule "standard". 

   25% upon completion of the foundation and the first floor deck has been constructed.  The foundation walls have been damp proofed and ready for backfill.

   25% upon construction of the shell of the home with the roof shingles complete.  The windows and doors installed and all partition walls framed.

   20% when the plumbing, heating, and electrical rough in complete, and the walls are insulated and ready for drywall.

   20% upon completion of the siding and exterior trim work, the dry wall has been finished, and painting is complete.  (He meant interior paint, because it was winter and exterior painting was not in the contract)

   10% upon completion and issuance of the Certificate of Occupancy by the building inspector.  (The bank would not issue the final draw until they also received a Certificate of Satisfactory Completion from the bank's appraiser.)

1. 
   BillHartmann | Oct 02, 2004 07:08pm | #7

   Are you supplying the plumbing fixtures, applinaces, floor finsihes, and tile outside the bank loan.

   It does not seem that there is enough room for those in the draws that you listed.

1. 
   WayneL5 | Oct 03, 2004 06:55am | #8

   Yes.  All of those you mentioned were purchased by me, and the appliances and tile were installed by me.  I also built and installed the kitchen cabinets and some other built ins.  I subbed separately to the HVAC guy and the stonemason, but the schedule was coordinated with the GC.

   It wasn't really "off" the loan, strictly speaking.  The loan was for 80% of the estimated value at completion, which is standard, and the bank didn't know that I was doing some of the work myself.  Whether I did or not the loan amount would have been the same.

   The draws add up to 100%, but that dollar amount is 80% of the value of the home.

3. 
   FrankB89 | Oct 02, 2004 07:26am | #4

   I deal with a couple of banks who provide draws based on work completed, but with both of them, the original bid is broken down into numerous components.

   For example, site development/excavation, permits and fees, foundation, framing, roofing, HVAC, plumbing (top-out and finish), electrical (from service through wiring and fixtures), insulation, drywall, cabinetry, etc., etc., are all itemized in $$ amts. on the HO/GC's cost breakdown spreadsheet.

   As the G/C, I initiate the draw request when a specific item is completed, or stages of progress can be demonstrated.

   The home I'm currently building has a little more complexity than average....lots of little framing details and an exceptional amount of seismic and wind connectors, hold-downs, strapping and shearwalls, all which slow things down a bit.  So I just took a draw for 50% of the framing, even though we're in the midst of framing the roof.  (the framing is actually about 80% complete, but I like to hold back a little when I can so down the road, I've got a little cushion against Mr. Murphy).

   Even though I'm a small operator, I maintain a business line of credit with another bank just as a back-up for cash flow.  I rarely use it and keep it paid up promptly, but I'm able to keep IRS, employees and vendors paid up when the draws get a little sparse.

   I normally ask for 10%-12%  of the contract price up front, if for no other reason than a commitment by the client to get things going.  I always set up a builders account with the lending bank for specific projects.  The banks are glad to do this, it doesn't cost me anything, the bank can electronically transfer the draws straight into the account, all my subs and vendors get paid out of that account and cost tracking is greatly simplified.

   I have built homes for HO's who were paying me directly, and in those situations, as someone else mentioned, there is a lot more flexibility between builder and client.

    

4. 
   davidmeiland | Oct 02, 2004 08:02am | #5

   It sounds like you may be locked into a price with the HO but not locked in on your materials. If the contract is not signed yet (or even if it is), check for and read the recent threads on 'material cost escalation clauses', both here and on the JLC site. Materials are very volatile these days and it's not safe to be locked into a fixed price construction contract unless you're able to buy all the materials within the short (10-30 day) guarantee periods on your supplier's quotes, you have an escalation clause, or you have so much fat in the estimate that you don't care if things go up 20, 30, or 40%.

   Also, there's nothing that says your deal with the HO has to be structured by the bank. The HO may not want to admit s/he has money to kick in up front, even if the bank isn't going to be paying a draw until later. I've done a couple of jobs where banks were involved, but in both cases the owners had their own cash flow to handle the payment schedule without waiting for their draws. I honestly don't think I'd build anything based purely on bank draws... no way I'm getting $50K in before the first check comes my way.

1. 
   jjwalters | Oct 02, 2004 01:14pm | #6

   the bank is God when it comes to draws, but I always got up-front money to cover ground work and footers from the home owner............