Private Money Investment to build spec homes

[Rick Edgeworth]

I'm a home builder and have been approached multiple times from investors wanting to front the money for me to build additional spec homes. My question is what type of terms are these done on? What would be fair from a risk and reward standpoint? From what I've seen a 6-10% return for the investor would be fair. Is this correct? What type of contract would we write up for the deal? I would like to do it but not sure the steps forward. Any feedback/direction/sources would be appreciated. Thanks!

[Jay Hinrichs]

@Rick Edgeworth are you talking about lending terms as in APR.. or are you talking about % of equity.

contruction loans are the most complicated and dangerous that a private investor can do. and its a reason that the majority of HML simply do not do them.

the question is other than building a house do you bring in any equity or are you looking for the investor to put up 100% of the money to buy the dirt and build the house.  if that is the case.

then the investor should simply do it themselves and hire you as a fee builder.. this is better for you.

you have no debt obligation just a service contract.. you get paid regardless of what the house sells for etc etc..  this is what i do with my builders.. depending on the value of the end product.. build fee's for GC's in a semi volume play is 7 to 15k per house... pretty nice gig for the builders if we do volume.. No volume then its not that great.. and you would do better to bring equity and then borrow.

I have talked to some banks in TX and they will do construction loans on spec.. and for really good rates. you need 30% or more equity