I turned it down

[David Neely]

So I was presented an opportunity from a realtor I work with, that I eventually turned down, and wanted to get feedback from those on this forum that are smarter than I am on this stuff (i.e. everyone) as to if I evaluated correctly. (Background: I'm a buy and hold guy, not a lender..so this was my first "exposure")

The deal: Person "A" is moving here to work in Factory "B". "A" is not a U.S. citizen and is having a hard time financing a house through conventional means, despite owning 3 businesses (location/type unknown). They want to build a 265k house, with 120k down at closing. "A" wanted my to pay the balance on the house (providing the mortgage) with the following terms:

1 year ballon

7.43-ish % ($1500 per month as offered by "A")

Analysis:

So here's where I started to see red flags: 

1) He wants to put 120k down on a 265k house at closing, and pay off the note in a year, but can't liquidate enough funds in the 4 months construction time to pay cash? I have serious doubts on raising that kind of capital to pay off the ballon, and then I'm stuck with a 265k house I don't want or need.

2) While an "expensive" ballon loan, 18k really isn't a great ROI when we're talking investment properties vs. where my money is tied up (as compared to purchasing cash-flowing rentals utilizing leverage)

3) I know Factory "B" pays well, but not so well that he could cover that balance in a year AND still eat anything other than ramen noodles 2 x a week as a strict diet.

Unfortunately, these are the few details I was provided, and the concerns I addressed with the realtor that brought this offer to me..

So, what do you think? Would you have loaned the money? 18k over 1 year at ~7.5%?

(Obviously, this post discounts the fact that I didn't proceed to performing the due diligence of contacting references, rental histories, proof of employment/salaries, etc.)

Thanks,

Dave