A flipper wants my $92k at 11 percent, and I've never been on this side

You hire the title company, or at minimum you pick it. Not him. The lender's side of that closing is what tells you whether there are other liens, unpaid taxes, or a contractor who already filed something. And you want a lender's title policy in your name for the loan amount, which is a separate thing from the owner's policy he gets. Costs a few hundred to low four figures depending on the state. If he balks at you choosing the closing agent that is your answer on the whole deal.

Run the actual number before you decide anything. $92k at 11 percent interest only is $843.33 a month. If he pays for the full 9 months that's $7,590, plus $1,840 in points at close, so $9,430 on $92k over nine months. Annualized that's about 13.7 percent because the points get earned over a shorter window than a year.

Now run the other case. He goes 9 months, extends 3, and pays late twice. Same money spread over 12 months plus one extension point is roughly 12.9 percent, and you've had $92k locked up an extra quarter with no ability to redeploy it. Then run the case where he stops paying at month 4 and you spend a year getting the house back. Your return in that case is whatever the house sells for minus everything, and it is not 11 percent.

The 11 percent is the good outcome. Price the other two before you say yes.

Question nobody's asked yet: who collects the payment. If it's him sending you a Zelle every month, you have no payment history anyone else will ever recognize, no escrow for taxes and insurance, and no third party record of when he went late. A licensed servicer takes something like $20 to $40 a month per loan depending on who you use and handles the statements, the 1098, and the demand letters. On one loan it feels like overhead. The first time you're in front of a judge explaining the payment record it isn't.

Insurance. He needs a builder's risk or vacant dwelling policy for the rehab period, not a standard homeowner's policy, and you need to be named as mortgagee on it with a certificate sent directly to you by the agent. Then set a calendar reminder for the renewal date, because the way these go bad is the policy lapses in month 7, the house has a fire, and you find out you were lending against a slab.

Also ask for proof the taxes are current at closing and require them escrowed or at least evidenced annually. Delinquent property taxes generally sit ahead of your lien, and the rules on that vary by state, so ask your closing attorney how tax liens prime a mortgage where the property is.

Slightly basic but I want to get it straight: the 2 points, is that $1,840 he wires you separately, or does it come out of the $92k so he only receives $90,160? I've seen it described both ways and it changes what he actually has to work with.

@sable it's usually netted from the funding, so he receives $90,160 and you've funded $92,000 of principal. Which means his real cash need is $1,840 higher than he probably budgeted.

@cairn the thing I'd be uneasy about isn't the deal, it's that it's all of it. $92k is your whole lending allocation in one loan, one borrower, one house, one submarket. If it goes sideways you don't have a portfolio absorbing it, you have a single event. People lending $500k across eight loans can survive one bad one. You can't yet. That's an argument for a smaller first loan even at a worse rate.

$35k on a 1950s three bedroom, what's in it? If the scope is paint, floors, kitchen, bath, that's a real number in a lot of markets. If it includes a roof, a panel, or anything under the slab, $35k is a wish. My crews are quoting sewer line replacements alone at $8k to $14k depending on the run and whether the street has to be cut. Ask him for the line item budget with contractor names next to each line, and ask what his last three flips actually came in at versus budget. If he can't produce that from memory he isn't tracking it.

I have no money to lend, and this still shows me how much of the work happens before the wire goes out.

I'm still tangled on the document side and this seems like the place to ask. The promissory note is the promise to pay, fine. But the thing that actually attaches to the house is a separate document, a mortgage or a deed of trust depending on the state, and it has to be recorded at the county to be good against later claims. Is that right? Because if it is, then @cairn signing a note and nothing else gives him a piece of paper and no house.

@vellum yes, two documents, and which instrument is used and how it gets enforced depends on the state. That's the correct instinct.

@cairn, past the note and the security instrument, the terms I'd want written and would ask an attorney in the property's state to draft. A default interest rate that steps up from 11 to something meaningfully higher, because otherwise a defaulting borrower is paying the same as a performing one. Late fee and grace period defined in days. A personal guaranty from him individually if he's borrowing through an LLC, which most of them do. Whether he can prepay in month 2 and hand you your money back with $1,840 of points and two months of interest, or whether there's a minimum interest amount you're entitled to regardless. That last one is where I've seen new lenders get a nasty surprise, they underwrote 9 months of yield and got 60 days.

Also a clause requiring your written consent before any junior lien goes on the property. He can otherwise put a second behind you without telling you and you find out at the foreclosure.

The ratio you're quoting is the flattering one. 45 percent of after repair value assumes the repairs happen and the value is real. The number that protects you the day he walks off is your loan against as-is value today, unfinished, sold to whoever will take it. That's $92k against a house worth roughly the $118k he's paying, so about 78 percent, and that is a thin cushion once you add a year of carry, legal fees, and a trashout.

If you want to lend against ARV, hold back the rehab money and release it in draws so your outstanding balance tracks the work actually done. Fund $83k at purchase, hold $9k, and you're never far ahead of the collateral. @girder will have opinions about how to inspect the draws.

One more before you commit. Whether a person can make this loan without a license depends on the state, on whether the property is owner occupied, and in some states on how many loans you make in a year. Business purpose loans to an investor on a non owner occupied house are treated differently from consumer loans in most places, but the line and the paperwork proving which side you're on differ state to state. Get a real estate attorney in that state to tell you what you are before the first wire, not after the fifth loan. That's an hour of billed time and it's the cheapest hour in this whole file.

Related, have him sign a business purpose and occupancy certification at closing. It's one page and it's the document you'll be glad exists.

If you post the town and the house type I'll pull what I can see and tell you how many comparable sales actually closed. Worth knowing that about a dozen states don't make sale prices public at all, so in those you're working from listing data and whatever an agent will share, which is a real limit on doing this yourself.

Following up on my own point because @canton said it better than I did. When you order the title work, ask specifically for the payoff and lien search, and read what comes back rather than letting the closer summarize it. On a house that's been flipped before you sometimes find an old mechanic's lien nobody cleared. It's ten minutes of reading.

Draw inspections, since I got named. Don't pay for materials sitting in the driveway, pay for work installed. Three draws on a $35k scope is plenty: demo and rough done, mechanicals inspected and drywall closed, final. Someone has to physically walk it, and if that's you, go with a flashlight and open the panel. If you're not comfortable doing that a local inspector will do a progress walk for $150 to $250 a visit in most markets.

And get lien waivers from his subs at each draw. In a lot of states an unpaid sub can file against the property after you've already released the money, so the waiver is what keeps his cash flow problem from becoming your title problem. Ask the closing attorney what form your state expects.

The two week deadline is doing a lot of work in this post and I'd want to know why it exists before I let it decide anything.