Lending to flipper for construction w/o collateral

[Aaron Fine]

I’ve done a few deals with a flipper in my area and all have went well. The new project is a knockdown and new construction build. The issue with our loan would be that there is no collateral since our loan amount would be more than the land value itself if anything were to happen. He doesn’t own another property at the moment free and clear to use as collateral. Would you all feel comfortable or is it safe to have a mortgage on the property if the value is just the land at the beginning of the build? Thanks!

[Jay Hinrichs]

Quote from @Aaron Fine:

Quote from @Andrew Postell:

@Aaron Fine what you need is a new build or construction loan.  There's specific products for what you are trying to do.

I’m the lender. It’s an investment for me. He’s not going through a bank. 

its a construction loan you do yourself.  I do these routinely for my clients and we use our own money.

you provide a first position loan at no more than 55 to 65% of finished value. I would also have a good appraiser to an ARV apprasial so you know the numbers all work IE land costs and build cost and then there is significant equity still there. Normally builder will pay cash for the lot like i do that their skin in the game.. If they have no cash your taking a huge risk on a ground up new build. and for that you would want to get a standby rate of interest like I do say 10% and I would charge 50% of the upside profit.. if they are putting cash into it.. 3 to 4 points and 10 to 15% interest is market.
and you give them money in draws as work is completed.. You hire a construction draw company to make sure building is done right etc. Also control the draw funds pay the subs directly and get lien releases .. I NEVER ever give my GC all the money I always pay the subs directly. 
this should get you started.