Loan to build out a small cabin village.

[Jason Kornreich]

someone came to me looking for a $100k loan to build out two small cabins.   land is fully paid off valued at around $300k ( 10 Acres).  would pay monthly based off of net income and then balloon payment of $200k once they refinance the property in 3-5 years.  

Balloon payment is fine and monthly payments should equal out to around 10% year return.   

Question, how can i protect myself vs property owner walking away with never building the building.   Should i request personal loan or a lean on the property?

All thoughts and ideas welcome.
  

[Stephanie Medellin]

Loans for construction typically are structured where money is provided in draws - as work progresses and you see each stage completed, you would advance more of the funds to the borrower.  That's how you make sure they use the money to complete the project.  Construction lenders also vet the project by making sure the budget is feasible and the property will be worth the amount being borrowed.  

All of the loan paperwork is completed upfront outlining all of the terms, and yes you absolutely want to have a lien on the property.  Have an attorney draw up all the loan documents, do a title search and obtain title insurance, etc. for you.