The income is taxed as interest, which means ordinary rates but no self-employment (Social Security/Medicare) tax.

It can be either ordinary gain or capital gain ( short term if you sell before a year)depending on how you plan and document your intent.

There are always a lot of fees with lending, but nothing out of the ordinary! 

My house is 200 sq ft larger, has the same upgrades as my neighbor's, AND we have a small yard when my neighbor's house has no yard (just patio).

Assuming this was their personal residence and All cap gain is exempt under section 121, and was never rented (no depreciation recapture.)....1) return of basis-no tax2) cap gain-cap gain tax if not exempt3) interest-taxed as his ordinary income tax rate (no ss/med)

Yes, I agree with the SF comment, for me they are asking way far from what what is really worth perhaps betting on the potential of the lot (huge patio around the house) that easily accomodate an extra room extension for example.

Without knowing the status of the project, I would like to add that you might be able to save some taxes if you sell your land to a closely held S-corp. if you dont do that, the appreciation in the land will be taxed as ordinary.

My term is 1st+last + security. 3 times rent of about 900$ is not something ordinary people (not rich but "working") should have?

Quick cash may transform into ordinary income taxed at your W-2 rates.

Typically the HOA owns the common areas -- the land, the land improvements, the exterior of buildings, the roof, the patios, etc -- and the homeowners own the interior only (i.e.