Value-Add Renovation Draw & Interest Reserve

Why Use This Tool?

When undertaking a major value-add renovation or new construction project, developers rarely receive the entire loan amount upfront. Instead, construction loans are dispersed in monthly 'draws' as work is completed. Because interest is only charged on the outstanding balance, calculating the total interest cost requires modeling the ongoing balance throughout the project lifecycle.

This calculator determines your required Interest Reserve—a critical line item in any development budget. An interest reserve is a pool of funds held back by the lender to cover the monthly interest payments during the construction phase when the property is not generating rental income. Miscalculating this reserve can lead to cash flow crises mid-project.

By selecting your anticipated draw schedule (linear, front-heavy, or back-heavy), the tool applies your annual interest rate to the compounding outstanding balance. It outputs the average monthly draw, the peak outstanding balance, your total required interest reserve, and the effective interest cost on the total loan amount.