What I’m thinking about: Intentionally reducing my profit ceiling heading into what I expect to be another bearish year…and why that’s the smartest move we can make as a company.
Quick housekeeping first: Last week’s 2026 macro predictions newsletter landed in some of your junk folders. Tried a new email delivery system tactic…think we fixed it this week (if not, let me know, email deliverability is an ever-changing black box!)
But here’s the thing…that’s exactly the mindset driving our strategic and tactical adjustments for this coming year. Most business decisions aren’t irreversible.
If something doesn’t work, you course-correct and move on (the pro move is to proactively plan for course-correction). The mistake is deliberating for weeks on decisions you could test in days (or less).
So let me pull back the curtain on some of the bigger bets we’re making (Deep diving into the first one, short summaries of the remainder mindful of article length, and we’ll return to these topics based on updates/performance):
The Profit Ceiling Trade-Off
Many eyes may glaze over in this section, but the takeaway is SO important!
Let me keep things as simple as possible:
My business partner and I run a promote structure for our business, typical of many real estate funds.
We are equal equity partners (e.g. I contribute $100 to the business, then so does he).
There is a ‘preference’ (abbr: pref) tied to the equity, to account for capital risk and opportunity cost. While not the same mechanically, think of it like debt interest.
Any profits returned above the pref are subject to a promote, which in our case, is returned to me as the day to day operator. For example, with a 30% promote, let’s say $100 in profit was made above the pref. So, I would earn $30 from the promote, and the remaining $70 would be split pro rata, meaning I’d earn another $35, and my partner earns $35. Make sense?
While not always the case, pref is often tied to the federal interest rate. Since rates have lowered compared to our previous “vintage” (e.g. annual fund), it would imply the pref could be lowered (e.g. from 16% to 12%).
However, to continue to make the model interesting to my partner in a difficult market and substantial capital req’s, he wanted to balance out the return profile, where he could earn a similar return in exchange for lower pref.
A lower pref reduces the pain of cash drag when we’re sitting on liquidity (e.g. cash that is earning minimal/zero return).
To paint that picture, if we have $100 in cash that sits in the bank account for a year, at a 16% pref, then a return greater than $116 would be needed on that capital over the course of the year to earn any promote. (Exchange $100 for $1M or $1B…and you start to appreciate the impact of cash drag.)
So my partner is willing to risk lower pref in exchange for lowering my promote percentage. This effectively lowers my profit ceiling.
Why would I voluntarily reduce my own earning potential?
Because in a bearish economy, perverse incentives will kill you.
(My read is that 2026 will be as difficult, if not more difficult, in real estate as this past year. I hope I’m wrong, and if I am, it’s crazy easy to flip the ‘Risk ON’ switch for a bull market. Many entrepreneurs fail because they don’t also understand there is a ‘Risk OFF’ switch when the situation calls for it.)
With a higher pref, you’re incentivized (consciously or not) to deploy capital faster. Chase more marginal deals. Stretch on underwriting to justify putting money to work, in order to get into the promote.
In a down market, our biggest advantage is liquidity (coupled with industry-leading underwriting)…with the ability to sit patiently and strike on screamer deals. I’d rather protect that edge than maximize my theoretical ceiling.
Lower hurdle rate. Lower promote. Less pressure to chase. Better decisions.
Business is all about give and take (at least the better operators understand this, which is a whole different discussion)…
And finding trusted partners who are willing to work with you for the sake of the long-term health of the business is rare indeed.
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On-Market Subdivide Sourcing
We’re building a low-overhead acquisition channel that supplements other operators bringing us deals. Zillow digests and realtor relationships (the latter enabling potential off-market sourcing).
Targeted criteria for value-add minor subdivides in markets we know well (starting with TX and NC, expanding from there).
Low hit rate so far as we ramp from ~2-5 daily deals to 20-50+. We’ve made exactly one offer…at just over half the asking price. Our threshold for pulling the trigger in this market is high, particularly for subdivides which is usually a better play in bull markets (like most investments).
Utilizing our 5 step subdivide formula for each review…it won’t steer you wrong.
This is a longer-term play, started about a month ago. Probably takes a year to really dial in. TBD.
Transactional Funding Revival
With continued regulatory pressure on double closes and wholesaling, we see transactional funding becoming a larger part of our business (in addition to increased equity funding opportunities). Particularly for large dollar deals (~$750K+), which tend to be less risky as buyer quality increases.
This runs counter to what I wrote about recently. Transactional deals are much more complex than they appear on paper, and we have the scars and experience to prove it.
Now, we run full equity-level underwriting on every transactional deal. Same rigor, and if we detect even the slightest hint of ‘something wrong’ prior to money being wired, we bow out, no exceptions.
We charge based on complexity, but few have the liquidity access we do, and no one matches the rigor of our underwriting.
Executing on ‘Buzzword’ Plays
Entitlements, seller JV partnerships, hunting tract dev, land/home sales, progress toward land banking.
All familiar buzzwords, few operators execute well on them…and easy to get wrecked.
Even in a difficult market, we are confident that our internal underwriting can get us ~80% of the way there in ANY type of land deal, and we know how to locate the correct expert(s) to fill in the remaining 20%.
Interesting conversations with quality operators in all of these areas, stay tuned.
The AI Admission
I have to own this: We fell off the wagon on AI workflow implementation over the past couple months.
After making immense progress over much of 2025 (thanks Callan and the UnCommon team!), we took our foot off the gas, relying on AI projects we already built, instead of continuing to push the envelope.
Why? Comfort and distraction. The two greatest enemies of any entrepreneur. No one is immune, certainly not me.
Details don’t matter, just the admission, as painful as it is.
AI workflow advancement is our single biggest constraint on taking Serious Land Capital to the next level…from a revenue perspective, profit perspective, opening pathways to higher-level talent, and FREEDOM.
Most entrepreneurs will do everything BUT work on their #1 business constraint, due to the inherent ‘hairiness’ and uncertainty.
Don’t forget this…and more importantly, take action before it’s too late.
I’ve gotten back into the AI groove as of this last weekend…and it feels great. The new models are nothing short of spectacular.
Timing couldn’t be better to spend a couple of days with Callan in Costa Rica next month game-planning the future, LFG!
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Need funding from a team positioning for another tough year? Serious Land Capital maintains the liquidity and underwriting rigor to weather any market. We’re not sitting on the sidelines…but we’re not chasing marginal deals either.
