Risk in private note leading for rehab

[Yan Kang]

Dear experts, I would like to invest in a rehab for 10% APR for 6 months. The house purchase price is 85k, rehab cost I'd about 20k. The loan will be secured by a mortgage on the house in closing.

My questions for pros: 

(1) how much a loan can I go to minimize risk? I am thinking of 80% ($78k) as a bank typically does, but the buyer then may not have enough money from his pocket to purchase and do the rehab so we can not do the deal.

(2) how should the lending note be structured so that  in case the buyer goes bankrupt, i can still be protected?

Any advice is highly appreciated.

Regards.

Yan

[Jeff Rabinowitz]

To protect your investment you record a mortgage with the right of foreclosure. If the note is not repaid according to the term of the promissory note you may begin the foreclosure process which will ultimately allow you to sell the property to recover what the borrower owes.