How to Master Construction Draws for Multifamily Rehabs and Development

Introduction: Why This Episode Matters

If you’ve ever wondered how multifamily renovations actually get funded, this episode is for you. In this conversation, I sat down with Andrea Garcia, a multifamily operator and affordable housing expert, to unpack the world of construction draws—the monthly process that allows lenders to release funds to pay general contractors on rehab projects.

For affordable housing investors, developers, and advocates, mastering this process is critical. Done right, it keeps projects moving, contractors happy, and tenants in safe, upgraded homes. Done wrong, it causes costly delays, frustrated partners, and unhappy residents. Andrea brings years of real-world experience to explain how this process works, why it matters, and how to avoid common mistakes.

Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.

What Is a Construction Draw in Multifamily Real Estate?

A construction draw is the process where lenders release renovation funds in installments from the rehab reserve account. Instead of paying all renovation money upfront, the lender approves progress-based payments once work is verified by inspections and title updates.

This protects owners from overpaying and ensures contractors are only paid for completed work. Andrea notes that while it may sound bureaucratic, it’s actually a “legal, safe way to make sure everyone is honest.”

Who Is Involved in the Construction Draw Process?

Andrea explains that seven parties are usually involved:

• Ownership team or asset manager
  
  

• General contractor
  
  

• Architect or engineer
  
  

• Lender
  
  

• Title company
  
  

• Third-party inspector
  
  

• Property or construction manager
  
  

Coordinating these stakeholders is key to keeping the process smooth. Communication lapses can cause weeks of delays.

What Documents Are Required for a Draw Application?

Your first draw is the most complex. It typically requires:

• General contractor billing statement
  
  

• Conditional lien waivers
  
  

• Wire instructions for payment
  
  

• GC contract and insurance certificates
  
  

• Rent roll
  
  

• Inspection report with proof of payment
  
  

• Title update with proof of payment
  
  

Progress draws are simpler, requiring mainly billing, title updates, and inspection reports. Final draws require additional lien waivers, rent rolls, and closeout documents like G706 affidavits and punch list sign-offs.

How Long Does the Construction Draw Process Take?

Andrea warns that while you might aim for two weeks, delays can stretch payments out to 30–60 days depending on lender timelines and contractor patience.

This makes expectation setting critical. Contractors must know they may not receive payment for several weeks, and owners may need to cover expenses out of pocket temporarily.

Why Do Construction Draws Get Denied?

Even experienced operators run into issues. Andrea shares how one of her applications was rejected because ADA renovations on a staircase weren’t actually completed, despite the contractor’s billing. The inspector flagged it, and funding was withheld until proof of completion was submitted.

The takeaway: always verify work with property managers and on-site staff, especially if contractors are out-of-state and may leave before finishing.

How Do Construction Draws Impact Affordable Housing and Rent Increases?

In affordable housing, the draw process ties directly into HUD programs like the Chapter 15 markup-to-market, where full-scale rehabs allow operators to apply for rent increases.

Andrea stresses that keeping rehab reserves separate from operating expenses and CapEx budgets is vital for clean accounting and future rent adjustments.

Key Insights from Andrea Garcia

• Construction draws are installment payments that protect owners and lenders while ensuring contractors are paid fairly.
  
  

• Seven key players must coordinate: owner, GC, lender, inspector, title company, architect, and manager.
  
  

• Documentation is everything—conditional lien waivers, insurance, rent rolls, and title updates are non-negotiable.
  
  

• Plan for delays of up to 60 days; have contingency reserves ready.
  
  

• Affordable housing projects can leverage rehabs for HUD rent increases, but only with clean accounting and compliance.
  
  

Best Quotes from Andrea Garcia

“Construction draws are a legal, safe way to make sure contractors only get paid for work that’s actually completed.”

“If the inspection photos don’t match the billing, funding stops. That can cause weeks of delays.”

“You are as strong as your weakest link on the team. Surround yourself with the right people to deliver successful projects.”

“Affordable housing isn’t cheap housing. Done right, these projects get more funding than market-rate deals and transform communities.”

Common Questions About Construction Draws

1. How often are construction draws submitted?
Most projects submit draws monthly, but it depends on milestones and lender requirements.

2. What happens if a draw is denied?
The owner must provide proof of completion or cover expenses temporarily until the lender approves funding.

3. How long does it take to get paid?
Expect 30–60 days from submission to funding, though efficient teams may shorten it to two weeks.

4. Why do lenders require a title update?
It ensures no new liens or ownership changes occurred before releasing funds.

5. How does this apply to affordable housing deals?
In affordable housing, construction draws directly support HUD compliance and can justify rent increases through programs like Chapter 15.

Final Thoughts & Authority Reinforcement

The construction draw process may seem intimidating, but with the right systems and team, it’s entirely manageable. Andrea Garcia’s insights provide a roadmap to avoid pitfalls, protect investors, and keep contractors happy, all while delivering quality affordable housing.

Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.

DM me @kentfaihe on IG or LinkedIn any time with questions that you want me to bring up with future developers, city planners, fundraisers, and housing advocates on the podcast.