Investing with a Builder good/bad?

[Ricardo R.]

Hi everyone. I reached out to a long time realtor of ours to let them know I'm back in the market looking for deals. She asked if I would interested in investing with a builder ( A subdivision builder) she is currently working with. She mentioned that because construction is at such an early stage, than when a sale goes through the buyer has to take out a construction loan in draws to finish out the project. It would make it easier and faster for the builder to to able to depend on private money for the build instead of going through the loan process via the bank and then depend on draws. She mentioned returns in the 6-7% arena with a lien on the property to protect my interest. 

Does anyone have any experience in this area and advise on what I should be watching out for?

Any input would appreciated builder, investors, buyers welcome. 

Alex

[Arlan Potter]

Be wary.  I have built many new homes and I go to the bank. Building new homes can be a risk if the home does not sell. Banks keep me honest.  And if you fund the deal the builder gets paid, and has no sales risk. He could walk and you would have the house. And if it sits for a couple years, you lose. Or worse, if he doesn't finish and has taken too much money, you really lose. Don't be a banker.

Or it may work out great for you.