Second position loan for rehab

[Bill McGrath]

I have a deal that's come my way through a mutual friend who is doing their first flip.  They have a hard money loan for 70% of the purchase price, and need the other 30%.  They're  offering 12% for six month, interest only, on $150K.  I've been provided the hard money agreement, which puts me in the second position.  

The house is in good shape, in so cal. Purchase price is $695K, ARV is $905K, with rehab costs estimated to be $60K.

I've been provided the holding costs, and they expect the rehab to take 6 months. 

As this would be my first foray into RE investing (much less private money lending), I'm looking for some advice.  Am I crazy for considering this?

Red flags:  This is their first rehab, second position, money tied up for six months.

Positives: Learn the process by participating, put my money to work, rehab is local.

I've seen the property (outside).  Any advice is greatly appreciated.  Thanks!!

[Darren Eady]

Never ever ever lend in 2nd position on a rehab project. Even if they had done this many times, your money would still be greatly at risk, but given this is their first flip, I would bet your money is lost the minute you wire it! Their intentions may be great, but the costs will be higher than they think, they'll work with less than reputable contractors who will not perform as promised and the ARV may not be what they think because they do not know how to value the market properly themselves.

I've been down this road and it sucks!  I definitely wouldn't go down it again!

If you would like to connect through BP I can share some more of my investment history to see if could help you with your new ventures.