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Construction Disbursement: What’s The Deal?

    Video Transcript

    What’s going on guys, it’s Dustin here with FasterFunds Lending and here we are! Another week has gone by since our last video and every week my goal is to shed some information on how you can have success in your real estate investing career. So today we’re going to talk about construction disbursement. What it is, why we use it, the ins and outs of it and all that fun stuff. So let’s first of all talk about what construction disbursement is. With our loan program, there are certain times where we can fund the entire purchase, and the entire rehab of a project, but that does not mean that at closing we hand you a fifteen thousand dollar check and then you can go run away with it. Right? No. We go through a third party company that will do construction disbursement. So what is that? Construction disbursement is where we take that rehab money that we’ve agreed upon, crazy math let’s just say fifteen thousand, we’re going to put that with a third party company that holds that in escrow. That money, then, is going to be disbursed to you after that certain part of that work is done. So you have to provide that company, the third party company, with lien waivers and receipt to the construction disbursement company. The construction disbursement company then issues you a draw for equal to that amount. Ok? So if you paid a contractor. Let’s say it was for a roof, and it cost ten thousand dollars, you pay out of pocket for that ten thousand dollars and then you’re going to be able to get that draw and be able to get that ten thousand dollars back. So, the big pro to that is just quicker access to your money so you don’t have to wait until three months till the project is done, and then when the project sells or when the project does the refinance, you get that money a lot quicker. Also, one of the big pros with construction disbursement: you have to be organized with it because the only way you’re going to get your money back is by submitting these lien waivers and receipts each time. Right? So that’s really a good pro because in real estate investing some things can be chaotic, so this is just another layer to keep you more organized. So, we’ve talked a little bit about what it is, so now why do we do it? And again, the biggest reason to do it is because you get quicker access to your cash. Instead of that, you know, even in this hot market, you can sell a property real quick, the reality of it is that it still might be thirty, forty five days before that actually closes, so now you can get your money back real quick. I hope that makes sense. We talked about the draw. Now, there is a cost associated with this. This cost can range, depending on which disbursement company this is, anywhere between seven fifty to nine fifty, depending on the situation and things like that. So that is paid out of closing, make sure you remember this is not a free service, there is going to be a cost associated with it. So to recap: construction disbursement, why do we use it? We use if, for the biggest reason, is that it’s just quicker to access your cash. This way you don’t have to have as much money on hand to finish a project. Ok? Keeps you organized, what we have to do with that is we’re gonna have you show those lien waivers and receipts. This only protects YOU in the case the contractor runs off, or anything like that – you have the lien waivers. Ok? We talked about the cost, and you remember that it can be seven fifty to nine fifty, depending on the service. We talked about what draws are. A lot of companies have a certain amount of draws that you can do. So you don’t want to, every time you pay someone five hundred dollars, do a draw so you have to have this organized and make sure you got a system around it. We’ve talked about the why, we’ve talked about what it is. Guys, I hope this makes sense. Again, here at FasterFunds we want to make sure that we’re offering you tons of advice and making sure that we’re helping your real estate investing career. If you have a idea or a question about what you would like one of our videos to do, just go ahead and comment down below and guys, make it a great week! We’ll talk soon.

    Author: Frank