Lending instead of buying
Subject property is next door to a multi I own. It's half re-habbed. Owner is a contractor who appears to have run out of money. I've met him. Nice guy. Says he going through a divorce.
He has a $225K mortgage at 14% (yes, you read that right), or so he says. I estimate the property needs $75K to $100K to finish as a 3 fam.
I offered to buy it for $275K. He said no. Instead, he said I should refinance him for $300K at 12%. So 1%/month interest. He says he will finish the property and then refinance it and pay me back.
I'm considering this because 1) $3K/month is like rent. and 2) if he can't pay I get the property.
I know that the biggest risks are:
a) I can't foreclose because of some legal **** with his wife or something else. I'm having a real estate lawyer draft all the docs, so I feel I'm protected, but please correct me.
b) the property needs more than $75K or he otherwise wrecks it and I end up with a hulk worth less than the $300K I have sunk into it. I have no real solution for the risk except maybe have some sort of monthly inspection on his work progress
c) Not sure if he can get insurance with me as the named beneficiary
What else am I missing?