We've already put money out of pocket for this project (ie. earnest money deposit on land offer, soil/perk test, paid builder to dig hole for perk test, etc).

With a healthy Bynum, the Lakers will win it all.

Using this strategy will save you time, money, and better your emotional and physical health-I assure you.

He’s great guy we love to death, but initially found he’s awful at paying us in a timely manner.Rather than chase him each month for checks (I’m convinced he used it as an excuse to buy lunch for my wife), we just write our loans with him to pay everything, points and payments, at the end of the loan when his deal sells.We charge interest on the total unpaid balance each month (i.e. interest on the monthly interest and points) which very slightly increases our ROI but is in no way punitive and maintains our very healthy relationship.This obviously won’t work with a long term loan but almost everyone we do business with now prefers this arrangement.

In my opinion, I would rather live loosely and not worry too much about money reserves and mortgage but keep funds healthy vs that of live frugally but own a house and flat broke every month.

Has there been erosion of the soil under the foundation and will that need to be stabilized?

which doesn't contribute to a healthy, long term relationship between us and the investors.As a passive investor you need to understand the difference between Return ON Investment and Return OF Capital.

The bank will rely on the appraisers more than they will your pro-forma, so you may as well know what the appraisers think.You sound like you have a healthy skepticism for this particular deal, and are more interested in the education it can provide.  

Besides that with basically every home built prior to 1980 will have some foundation issues because of the clay soil here in Texas, it's a given to allocate for problems. 

We have cruddy clay soil that moves constantly and causes all sorts of issues with the slab foundations, resulting sheetrock cracks, etc.