The screening is always your best weapon to try to prevent this.Now the problem has grown into several months of late payments and a loan facing default.

There are some guidelines to follow in order for "vacation property" to qualify in an exchange as replacement property:According to Revenue Procedure 2008-16 - The purchase of a vacation property or a second home will qualify as replacement property in a tax-deferred exchange transaction if the following safe harbor requirements are met: The subject property is owned and held by the investor for at least 24 months immediately following the 1031 Exchange ("qualifying use period"); andThe subject property was rented at fair market rental rates to other people for at least 14 days (or more) during each of the following two (2) years; andThe investor limits his or her personal use and enjoyment of the property to not more than 14 days during each of the following two (2) years, or ten percent (10%) of the number of days that the subject property was actually rented out to other people during each of the following two (2) years. 

Several investors I've known let the property sit until these periods expire before they begin any work...just to be safe.

Zack,While i think private lending is a geat investment (and a safe one since you hold the note) I'm a firm believer in "don't put all your eggs in one basket."  

Is there a safe way to provide financial assistance without incurring significant risk?

., I figures were provided in the financials but I did increase most of the expenses to be safe.

I pay mine on the 13th just to be on the safe side.

I believe it comes down to your integrity and how much of a desire you have to keep your community safe.

US housing market improves as Chinese investors look for alternative safe havens.My personal thoughts is that the net effect will be close to nil. 

If something were to happen to a tenant in the unit, ie fire, earthquake, etc, you could be held liable because you allowed someone to rent a space you know was not permitted and possibly not safe.