Your rehab budget isn't just a cost estimate — it's underwriting data. When you submit a fix and flip deal to a hard money lender, the scope of work directly determines how much we'll lend, whether we'll fund the full construction holdback, and how quickly we can move. A vague or unrealistic budget can stall your approval or reduce the loan amount significantly.
Here's how to build a scope of work that lenders trust — and how to avoid the mistakes that slow deals down or kill them entirely.
Why this matters for your loan: Hard money lenders lend against the "as-improved" value of the property (ARV) and the total project cost (LTC). The rehab budget is half of that equation. An under-scoped budget leads to a loan that runs out before the project is done. An over-scoped budget leads to a lender who doesn't believe the numbers.
What a Scope of Work Actually Is
A scope of work (SOW) is a line-item breakdown of every repair or improvement you plan to make to the property, with a cost attached to each line. It is not a general description like "full renovation — $65,000." It is a document that looks like a budget spreadsheet, broken down by trade and system.
Lenders use your SOW to:
- Verify that the renovation cost justifies the loan amount
- Structure the draw schedule (which milestones release which funds)
- Assess whether the ARV is realistic given the planned improvements
- Evaluate the borrower's competency and preparation
How to Structure Your Line Items
Organize your SOW by category. A solid format:
| Category | Example Line Items |
|---|---|
| Demo & Debris | Interior demo, dumpster rental, debris removal |
| Foundation / Structural | Foundation repair, joist sistering, beam replacement |
| Roofing | Full tear-off and reroof, fascia/soffit, gutters |
| Exterior | Siding, windows, exterior doors, paint |
| Plumbing | Full replumb, water heater, fixture rough-in and trim |
| Electrical | Panel upgrade, rewire, fixtures, outlets |
| HVAC | New system, ductwork, mini-splits |
| Insulation / Drywall | Insulation, hang and finish drywall, texture |
| Flooring | LVP, tile, carpet — by room |
| Kitchen | Cabinets, countertops, appliances, backsplash |
| Bathrooms | Vanities, tile, tub/shower, fixtures — per bath |
| Interior Finish | Trim, doors, hardware, paint |
| Landscaping / Exterior | Grading, lawn, driveway, curb appeal |
| Permits & Inspections | Building permit, inspection fees |
| Contingency (15%) | Buffer for unknowns |
The Contingency Reserve: Don't Skip It
Every experienced investor builds a contingency into their budget — typically 10–20% of the total renovation cost. If you're new or the property has deferred maintenance, use 20%. If you've done multiple projects and have tight bids, 10–15% may be appropriate.
If your submitted budget has no contingency, most experienced lenders will assume you've never done a renovation before — and that's a flag. In practice, every renovation hits unexpected costs: rot behind walls, plumbing that's worse than it looked, code upgrades that weren't anticipated. A contingency isn't pessimism. It's professionalism.
SGC approach: We prefer to see a realistic budget with a contingency rather than a tight budget that assumes everything goes perfectly. Under-budgeted projects run out of money mid-renovation — and an unfinished property is worth far less than the lender's collateral value assumed.
Get Actual Contractor Bids
The strongest SOW you can submit has contractor bids attached. Even if they're preliminary bids, having a licensed contractor sign off on the numbers adds credibility and can accelerate the underwriting process.
If you don't have bids yet, use current market rates for your area and note that the bids are in process. Lenders understand that you can't always have everything signed before you go under contract — but we do want to see that you know the market well enough to ballpark it accurately.
Red flags lenders see:
- Kitchen and two bathrooms scoped at $8,000 total (not realistic in most markets)
- Full HVAC system listed at $2,500 (this number was last accurate in 2015)
- No permits budgeted for a project that clearly requires them
- Round numbers on every single line item ($5,000, $10,000, $15,000) with no itemization
Match the Rehab to the ARV You're Targeting
Your scope of work has to make sense given the value you're claiming at completion. If you're targeting an ARV of $450,000 in a neighborhood where renovated comps are all granite countertops, stainless appliances, and LVP throughout, your scope needs to include those finishes. A budget that installs laminate countertops and basic white appliances won't support a $450K ARV claim.
On the flip side: don't over-improve for the market. If comparables are $350,000 with mid-grade finishes, installing custom cabinetry and commercial appliances will cost you money, not earn you more of it. Lenders want to see that the scope matches the neighborhood and the exit price.
How Draw Schedules Work
Once the lender approves your SOW, the construction budget is typically held in a "holdback" — funds that are released in stages as work is completed and verified. Each draw release is triggered by a milestone, inspected before funds go out.
A typical draw structure for a fix and flip:
- Draw 1 (Demo & Foundation): After demo is complete and any foundation work is inspected
- Draw 2 (Rough Mechanicals): After rough plumbing, electrical, and HVAC pass inspection
- Draw 3 (Drywall & Close-In): After insulation and drywall are installed
- Draw 4 (Finish Work): After flooring, cabinets, fixtures, and paint are complete
- Final Draw: After final inspection and certificate of occupancy (if required)
The tighter and more accurate your original SOW, the smoother the draw process runs. Draws are inspected — your inspector verifies that the claimed work is actually done before funds are released. If your scope said "full kitchen: $18,000" but the inspector shows up and the cabinets aren't in yet, that draw won't release.
Have a Fix & Flip Deal Ready?
SGC funds up to 100% LTC with full rehab financing and draw schedules that release on your timeline — not ours. Fix & flip loans close in 2–3 weeks. No upfront fees.
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