Lending money to a builder

2 Replies

I have a good relationship with my realtor who has been very successful and I am looking to learn from him. He presented me with the opportunity to possibly lend money to a home builder as they develop a community. Example; They need money, give it to them as they build a house, they return money with interest, and do it all over again as they move onto the next house.

Any advice? If I need a loan, what kind of loan should I look at? Risks from someone who has been involved in something similar?

I'm confused, you're going to take out a loan to give someone else the money? If so, that would end up being close to a wash. If the builder doesn't preform then you will be the one on the hook. Seems risky to me. 

I think I understand your desire to take out a low interest loan, then lend out that capital to your builder at a higher rate of interest, pocketing the spread as profit.

- What rate are you intending to acquire your loan?

- At what rate atl RE you intending to issue your loan to the builder?

- How many payments can YOU pay out of pocket, in the case the builder “needs a grace period” or otherwise is unable to pay on time?

- What position would the builder defaulting put you in, given you are not interested or able to lend out your own money?

These are all my initial questions, though important ones.

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