Laguna Niguel, CA · Member since 2012 · 12 posts · 3 votes
I am going to loan a devolper x amount of dollars to build a spec home. I talked to the title company and they said I will be the 1st trust deed on the property and when the property is sold I will get my money back. A couple of questions
Lets say I put 100k on the first deed right now but he claims is going to make payments before the house is sould. Lets say he pays 25k so then the pay off would be 75K how does the title company know that he only owns me $75k?
When the title company sends me the $ do they 1099 me? how do they know if there is any earned income in the amount?
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
The title company handling the end sale of the property will ask you for the amount owed. Are the payments from the developer going to be interest only or will it be an amortized loan? You will need to be able to calculate how much of the payments went to interest and how much goes to principal.
Normally when you get paid off the only money you receive is principal but this can vary based on how the loan is structured. My guess is if the title company issues a 1099 it will be for gross proceeds.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
13y
Dennis Romano Your post leaves a lot of unanswered questions. Does the builder own the land or is he buying it? If he's purchasing it, how much is the land? What are the construction costs on the house? What size house is it? What do you know about construction? How will the loan proceeds be disbursed to the builder? Is the builder a licensed contractor? Does he have a bond and insurance? What experience does he have?
Are you giving him the money all at once, or in incremental payments based on the amount of work done on the job? Do you have a breakdown for payments to be made? How will you know what work has been done? Do you have any experience in construction?
Do you have an agreement that covers everything? What happens if the builder doesn't finish the job?
Though it seems like loaning money to someone to build a house is a simple proposition, there are many things that need to be addressed. If all the issues are covered, and you as a lender are protected, while the builder has access to the funds in a timely manner based on his performance, then it can be a good deal. It can also be a nightmare if you don't plan ahead.