Too big for first deal? $400k Spec Home

[Caleb Coblentz]

A little back end info- I'm a new agent with goals for my own investing.  I found a great lot with access to the inlet, bank owned, asking $107,000.  I sent it to a builder friend of mine.  He was very excited about a spec home on the property.  His idea was for him to do the plans, build the house at his cost.  I secure financing and we split all profit 50/50.  We would be spending around $300k on the build and should have a $550-650k home to sell at the end.  I know one private money guy.  

Do I:  

(A) sit back and be happy to be the agent on the buy and sell deal and maybe a finders fee

(B) put my wife, kids and house up as collateral for the private $$?

The builder has done several specs.  He laid out his 5 year plan to eventually be able to build homes with our money instead of borrowing.  I think it would be a great project, just don't want  to get in over my head.  Thoughts?

[Steve K.]

@Caleb Coblentz , search the BP forums....there have been many recent posts of similar to your idea: "how do I structure a partnership with my general contractor?" I think you could learn from those.

As I recall, a couple GC's chimed in and were against it....just agree to a price for my work....don't call me your "partner".

If you're on the hook for all the financing, can't you be the "speculator" yourself? ....and reap more of the profit? If you solicited bids, could you get more than one GC interested in building for $300k (actual costs?) plus some GC fee (10%????). So, I'd challenge you to rethink who's contributing what $, or time or know-how. Should the GC make $30k or $100k for his contribution??? What % should you earn for contributing all the financial risk?

That being said, if this is a bank REO property, would they give you an acquire and construction loan package? I don't think you need to assume its' a hard money lender. I believe you can find a local bank to give you 5% APR construction loan....at about 70% LTV on the whole costs, as long as your finished plans/specs appraise for ~$600k-ish.