At this point, they establish the total town budget.  

Obviously they are able to lower their rates without loss of investors, because people (probably newer investors) are lining up to offer their (hard) money at rates as low as 8.25 percent.

Oops, I totally forgot to add that. 

A bankruptcy hurts a credit score obviously but it's been long enough that it's highly possible he has built the score back up above 620.

All that matters is the performance in total.

The idea being in a hot rental market with rising values a sale in 10 years will net us a decent amount of money, even if we are only seeing a relatively small percent of total equity in the deal.Thoughts?

Zwave is totally fine with me.

But this builder has two specs 85% complete but obviously sitting there since he's gone bankrupt.

Does the total cashflow justify the risk?

Hopefully you also are paying down a mortgage; if so, the total investment might still be a success.If none of these work for you, get it sold.