Due Diligence on a Spec Home

[Hal Cranmer]

My lender called me yesterday and said he had A deal for me. A developer he knows is starting a new development and needs some cash to build a spec home to sell future homes. The homes would sell for around $200K and I would lend him $130k with him taking partial payments over 6 months. At the end of six months his daughter would buy the house and I would make 20%. She can't buy the home now because she is still in nursing school. She has a job lined up supposedly after school ends at which point my lender can finance her because she will have income.

This is the first time I have thought of anything like this. The deal seems a little too good to be true. I was wondering what kind of due diligence I should do? The property is about 2 hours from me so it is not in an area where I normally invest. Any thoughts and opinions would be great. Thanks.

[Karen Margrave]

If your lender thinks it's a good deal, why can't he put it together? Why does the developer need your money? What do you know specifically about the developers daughter that would be buying the property? Does she have a contract for employment at the end of her nursing education? How much will it pay? What is her credit score? Would she sign a contract up front for the purchase? How well do you know the developer? Have you checked his references?

As you can see, there's a lot more that needs to be known before anyone can give you an answer. If you're looking at that thinking it's "too good to be true" I have to wonder what you're looking at.