Acting as Lender on land deal?
I've been presented an opportunity to provide a $40k loan on a $45k land purchase. Within 6 months the Buyer would repay the loan plus $20k (50% ROI). He'll be selling the land for $175k, making a sweet profit. Land is worth $200k.
Is this low risk deal a good opportunity? Should I be asking for more just because he's going to profit so much?
Other thoughts or considerations? I'm thinking it'll be a recorded Commercial Loan, but don't really know whether there's a better option (my first time serving in this capacity).
Thanks in advance!
Zach
Most Popular Reply
From your post, the land is worth $45K and 200K. If the land is worth $200K, the last sale will be $200K. I just bought a 83 acre parcel in NC for $750/acre. "comparable" property sells for $2,500 an acre. That does not mean my parcel is worth $207,500.
Does he already have a sales contract for $175K? Then I'd do it. Otherwise, I would expect in 6 months your exit strategy would become an owner of a $40K piece of dirt. Land speculation is not low risk. If the Buyer is improving the property, which your post doesn't say, then there is some hope. If the parcel will fetch $200K, a bank will lend him $40K... but banks know better when they see a land speculator.
Good luck.