You would be investing in something that does not even exist yet. Construction has many problems. What would you do if construction was delayed or even halted entirely due to cost overruns? Do you get your money back? Will your investment be secured by other holdings? What are your outs? What is the reputation and track record of the developer managing the deal? What if he cooked the books and left town with your funds? Unless you are experienced in this area or else know someone who is and who can assess the deal independently for you and make sure safeguards are in place, I would say it is not a safe investment. That’s one reason why the returns are so high - you would be taking risks. You need to identify all the risks and eliminate or minimize them to protect your investment.
I’m from the savannah, ga area. I have been offered a 25% 2nd trust deed secured by a new medical office building that will be built on a 1.3 acre lot in a hot area. Total cost to purchase the land, do the improvements and build the medical office building is approx. $1.9 million. The developer is wating on the certified appraisal from a very reputable local company. The developer says that the appraisal will be in the $2.3 to $2.5 million area. The buy back period is 2 years for 25% and 5 years for 20%.
Is this a safe investment?? What else should I ask for? Any advice would be appreciated!! Would you invest in this with a portion of your personal or retirement funds?
Thanks
Lisa
P.S. Additional info - Loan amount $1.5 million - My investment 400K - developer $400k equity in land. The property has increased by 400k during the 9 month closing process.
All the other posts are giving you some very good advice. One additional thing that I see…1.9 for a medical building…either it is a very small building or ???. Medical buildings are special buildings and the cost to build it typically higher.
PLus…if they do not lease…you got yourself one BIG problem…now-a-days doctors generally get together and form their own groups and build their own medical complexes.
I would look very closely at all the numbers before I put 400K into it.
1.5 million loan plus your 400K …looks to me like the del is almost 100 percent mortgaged.
Where is your 400K going…for what…in the developer’s pocket?
20 or 25 percent interest in today’s low interest rate markets is a red flag to me…why so high?
He got the land, he got the construction loan.
What will he use your $400K for.
Did you check the true value of the lot?
What is the final cost of Construction without Developers profit? Get an accountant experienced with
this kind to get the true picture.
Just my 2Cents