Scope of Work: How to Write a Fix-and-Flip Rehab Budget That Draws Cleanly
A rehab budget that reads “kitchen remodel — $25,000” will stall your first draw request. Not because $25,000 is the wrong number, but because nobody funding that draw can verify what $25,000 bought. The scope of work is the document a draw inspector actually works from in the house, and the single biggest cause of a late draw is a budget written for a loan file instead of for someone standing in the kitchen with a checklist.
On a fix-and-flip line, rehab is released in draws as work is completed — it isn’t handed over at closing. That makes the scope of work the operating document for the whole project, not a formality you file once and forget.
What a lender actually wants from a scope of work
A scope of work is a trade-by-trade, dollar-by-dollar list of what’s being done, tied to a draw schedule that says when each piece gets paid. Two things separate a SOW that funds smoothly from one that generates back-and-forth with underwriting:
- Line items, not lump sums. “Kitchen remodel — $25,000” fails. “Cabinets $8,000 / countertops $4,000 / appliances $5,000 / plumbing fixtures $1,500 / labor $6,500” passes, because each figure maps to something an inspector can see finished or not finished.
- A draw schedule grouped by trade sequence, not by room. Demo, structural and roof go in draw one because nothing else can start until they’re done. Mechanicals — electrical, plumbing, HVAC — go in draw two because they have to be inspected before walls close. Finishes go last. A SOW organized by room instead of by trade sequence almost always has draws that can’t actually be verified in that order.
The arithmetic: how the budget and the loan amount actually interact
Here’s a worked example, with indicative figures only — not a quote, and not an offer of terms.
| Figure | Amount |
|---|---|
| Purchase price | $220,000 |
| Rehab budget (scope of work total) | $60,000 |
| Total project cost (LTC basis) | $280,000 |
| After-repair value (ARV) | $340,000 |
For an experienced investor on a light rehab, indicative program terms run up to 90% of LTC and 75% of ARV — whichever is lower actually caps the loan:
- 90% of the $280,000 LTC basis = $252,000
- 75% of the $340,000 ARV = $255,000
The LTC figure is lower, so $252,000 is the binding number, not the ARV figure. The borrower covers the remaining $28,000 of project cost plus closing costs out of pocket. Run this math before you finalize the scope of work, because a rehab budget that’s padded or thin changes which side of that comparison binds — and it changes how much cash you need to show up with at closing.
A new investor on the same deal would be modeled closer to 80% of LTC ($224,000), which moves the gap to cover to $56,000 — the scope-of-work total doesn’t change, but the cash you need to close the file does.
How the draws actually get released
Breaking the $60,000 rehab budget above into a three-draw schedule by trade sequence looks like this: draw one (demo, structural, roof) funds $20,000; draw two (electrical, plumbing, HVAC) funds $20,000; draw three (flooring, cabinets, paint, final punch list) funds $20,000, minus a holdback.
Programs on this kind of line commonly hold back roughly 10% of the total rehab budget — $6,000 in this example — until a certificate of occupancy or final punch-list sign-off, specifically so the project doesn’t stall at 95% done with no money left to finish the last items. Each draw typically requires a third-party inspection before funding, and a mis-sequenced SOW is the most common reason an inspector can’t sign off on schedule: if drywall is already closed over electrical that was never on a prior draw’s line items, the inspector can’t verify it, and the draw sits.
When a detailed scope of work is the wrong call
Not every project needs a three-draw, trade-sequenced SOW. If the rehab is genuinely cosmetic — paint, carpet, light fixtures, under roughly $15,000 total — building out a full multi-draw schedule adds inspection fees and turnaround time to a project too small to need them. On a budget that light, ask whether the lender will fund it as a single draw at completion instead. Forcing a granular trade-by-trade SOW onto a paint-and-carpet refresh is bureaucracy for its own sake, and it’s a sign the deal might be better suited to a smaller, simpler structure than to a full rehab draw schedule.
The same logic runs the other direction: if your rehab budget has more than a handful of line items you genuinely can’t price yet — you’re waiting on a structural engineer’s report, or the scope depends on what’s behind a wall you haven’t opened — don’t submit a SOW with placeholder numbers to hit a submission deadline. A placeholder SOW gets you an approval based on numbers that won’t survive the first draw inspection, and re-underwriting a revised budget mid-project costs more time than waiting a week for real pricing.
Where this fits
The draw-release side of this — how an inspector verifies progress and what triggers a holdback release — is covered in more detail for ground-up projects specifically. For a rehab-scale project, the fix-and-flip program page has the current LTC and ARV caps this math runs against, and current rates shows indicative pricing across every program we place. If you’ve already got a purchase contract and a priced-out scope of work, send the file over and we’ll tell you where it lands.