Collateralized Hard Money Loan - Help Please!

[Tyler Byrnes]

I'm new to the hard money lending business and have just done a few deals with a good friend. I know enough to be VERY dangerous, hence my outreach to my much more experienced peers.

A local builder in my area is looking for short term (12 month) financing to get a small housing project off the ground. They want to cash out 4-5 single family lots so they can use cash to build the first couple of homes and then keep their project going by their own cash after the first sale or two.

I don't feel comfortaable lending on just the dirt. It was mentioned that they could collateralize the loan with other real estate they own free and clear. This is way out of my league. Is this common and are there any traps I need to be aware of?

If it is a residential property that would be an easy re-sale, I'd be ok, but I could really use some guidance.

They are hoping for $200,000 and are willing to pay 10-12% and a few points, but I didn't go too far with it because I'd like to have a lot more information from other experienced people. The builder is well known and has completed many projects over the years, but did get caught up in the downturn and lost a lot of his capital. Apparently he has completed 4-5 hard money deals in the past 3 years and has a strong payment history.

Where do I start with this???