This episode examines a complex entitlement deal where the operator’s self-directed IRA structure made traditional debt financing impossible. The deal involved funding $100K-$300K in soft costs for a subdivide with a potential low seven-figure payday, but the IRA’s prohibitions against personal guarantees forced a complete restructuring from debt to equity through an SPV (special purpose vehicle). The solution required scrapping a limited recourse debt structure in favor of an LLC equity position with a promote, fundamentally changing the risk-reward calculus while preserving downside protection.
Key Takeaways:
- Self-Directed IRAs Kill Standard Debt Structures Operators using self-directed IRAs cannot provide personal guarantees or cross-collateralize assets, making traditional limited recourse loans effectively worthless since there’s no recourse if the deal fails.
- SPV Equity Beats Worthless Debt Structuring capital as a limited LLC member through an SPV provides better legal protection than unsecured debt when you can’t get guarantees, plus allows for promote structures that boost upside to match the higher risk.
- $50K Minimum Deal Threshold Drives Complexity Moving exclusively to $50K+ purchase prices (ideally $150K+) means routinely handling entitlement deals above $200K-$250K where creative problem-solving on term structures becomes mandatory, not optional.
- Deals Above $200K-$250K Require Creative Structuring Higher value deals typically involve more complexity (engineering reports, planning and zoning negotiations, buyer coordination), demanding flexibility in documentation that AI and industry peers can’t solve for you.
Tune in to hear the full breakdown of why even experienced operators need to rebuild deal structures from scratch when standard documentation fails.
(Podcast transcript below)
Welcome to Get Serious, where at Serious Land Capital, we have successfully funded over $6 million of vacant land deals with industry-leading 41 % operating margins. You might have noted the schedule shift here to where our default is going to be one Get Serious episode a week going forward here.
So, I was reviewing a ton of the stats and so forth and generally the more content the better, but I also felt occasionally I was having to stretch for topics and I always want to make sure that quality and having something to say is the ultimate determinant of
producing any type of content here. I think that is the trust we’ve built with the audience. And I don’t ever want you all to think that we’d be mailing it in for anything or just producing things to generate more leads for our business without, again, maintaining the pact we have with our audience of producing
um, you know, real high value content, utilizing our direct experience, um, to hope, uh, hopefully teach you, uh, lessons along the way. Um, and, you know, noting how much success our serious news newsletter has gotten, which is the once a week, um, cadence and, you know, generally it’s a good enough, uh, amount of time to where, you know, if there can always be a dedicated topic.
to, you know, really provide a thorough opinion on. So, you know, the default will be, you know, one episode of get serious per week. If there are more things happening or, you know, inspiration kind of strikes like, okay, yeah, there’s more to share her then, there’s no issue. We can, you know, just produce, an extra episode here and there, as a bonus. but otherwise going forward.
I’d like to maintain one episode per week at a minimum planning on every Wednesday going forward here. Plus we want to, you know, we’re a small team, right? We’re limited with the amount of resources, but we want to explore how do we throw in potentially some more edits or especially, you know, a lot of folks will, you know, not just listen to podcasts, but watch them. So, you know, can we throw in some…
graphics and so forth that might make it even more engaging and easier to follow for the listener, you know, from a video perspective, but, know, just like everything, when you try to do something new, takes a bit of time to learn the ropes and figure out how that might fit within our process. So, you know, trying to balance a couple things here. Business is an endless experiment, right? So this is the direction that we want to take it in at the moment. Appreciate your continued trust here and
You know, far as the topic today, enough of the housekeeping. You know, we’ve definitely noted and you’ve seen within the content we’ve produced that we’re continuing to go up market with various deals and nothing below 50 K purchase price and just, you know, want more routine, high level operators, higher value deals is what we’re going after less volume, but higher absolute value. And generally not always, but generally.
higher value deals will incur a greater amount of complexity from a due diligence perspective or just, you know, number of moving parts that you have to be aware of. It’s a, you know, not all the time again, but rough guidelines, probably when you’re above like the 200 to 250K purchase price generally, deals above that size are usually going to be more complex than
you know, just a typical flip that you might have. Sure. There could be very, um, you know, basic flips above that price. Like I’m thinking of, I don’t know, just larger acreage, um, tracks of, of land, um, that aren’t really conducive to a subdivide or, you know, potentially very high value HOA lots or infill lots that are, you know, luxury effectively. So, but, you know,
the times that those actually come up as opportunities within the land industry is not that common. So that’s why I just kind of make that marker there. But we’ve been examining a lot more entitlement deals recently and specifically as it relates to funding soft costs to get potential major subdivide deals ready to be sold at a stage of a
you know, for a paper lot perspective, like at a prelim plat, potentially a final plat, like there’s a few different stages that can kind of routinely come up during the process of prepping a major subdivide to a, you know, final anticipated vertical development build out or, you know, an end builder is gonna actually take over.
the entire project and get it set for final lot sales here. But most of the time when you hear entitlement deals, which is an entire different topic to fully break down each piece here, but trying to keep it relatively simple is that the game plan generally earlier on, and when most people say entitlement deals, it is, can you fund whatever soft costs which might be
you know, engineering reports or costs related to going back and forth with the planning and zoning department locally in order to de-risk as much as possible the anticipated development of the underlying land for a future developer and or builder or occasionally you can, you know.
find another middleman in between where you can get the paper lots ready for developer. They might do some additional work and then have a final sale to a builder. There are multiple different pathways that could be present here. The most amount of value that can be realized on these type of deals is yeah, the final individual lot purchases, but only a handful of.
players have that level of risk appetite and timeline appetite, as well as the capital reserves in order to do that. the vast majority of folks who are run smaller operations that are involved in the entitlement game is mostly paying for the soft costs to get the paper lots all set and then selling. It can be extremely lucrative. That’s the thing. mean, you can still take home million dollar paydays.
just by having the purchase agreement from the initial seller, doing some of that soft cost work, which might range anywhere from like 100 to 300K on average. It could be a little bit less, sometimes more, depending on the particular project. again, potentially taking home a seven figure, payday low seven figures, potentially depending on the area and if it’s a really attractive asset.
A lot of sweat equity is involved with this, got to have the right relationships and so forth. It can be a very high risk game if you don’t know what you’re doing. critically is because you don’t own the underlying asset is that the capital risk is extreme since the entire project could theoretically go to zero. Or you work on a
property that ultimately doesn’t have the development potential that you think it does, or even if it does, potentially the buyer pool dries up and the developers and the builders, run into issues or they, you know, find a different project, a better project for them to go after, or they want to renegotiate on the price. so, you know, that’s always the risk in deals where you’re not controlling the underlying asset here. So it’s kind of a trade-off of, you know,
high risk for the underlying capital, but potential higher returns, you know, compared to what you might expect if you are owning the underlying land. know, generally less inherent market risk as well too. Like usually you’d only want to start paying for some of these soft costs if you’ve already lined up a buyer on the backend. And so then you have more of a dedicated timeline for when you’re actually going to realize the result here and you know,
The absolute best way to do this is when you can just, you know, still take a cut of the profits and just have the end buyer, you know, pay for all of the soft costs. And so you’re just kind of serving as a middleman in between. I’ve only known, you know, maybe one group who’s done that successfully. Like again, you probably need to build relationships over the course of a decade or more in order to get that done. So the vast majority of the time you’re going to be on the hook for funding.
at least some of the soft costs. And so with all that in mind, we’ve been looking at deals that fit within this paradigm here. And very, very interesting deal. mean, with working with experienced operators, super attractive underlying assets, know, and buyers already lined up on these deals in, you know, just very intriguing locations.
half the time we’ve gotten entitlement deals like, is maybe a tougher area to work in. And if something goes wrong here, like we have almost no recourse or at least like, again, our number one goal whenever we’re investing in something is, don’t lose money. like, what’s a chance that we at least get our money back at a minimum here?
understanding that we’re not controlling the underlying assets. So our return has to be commensurate with that level of risk. And so when we’ve been looking over these deals recently,
It’s not worth me going into all of the exact particulars on what’s made this so tricky. I think the underlying takeaway here is that, you know, the longer you’re in the game here and the higher the level of deals that you want to go into is the more, I keep coming back to this, like the more creative and, um, you know, your capability to problem solve and, you know, adjust documentation, figure out unique term structures.
that are fair to all the participating parties, but also are as protective as possible from a downside perspective. It’s a really difficult skill to do this well. I’m very fortunate to have my business partner who like just does this all look like. I think I’ve become very, very adept at this over time, but he’s one of the best at it. Just working at very high level restructuring, huge companies and like just does this.
all the time and sees the worst case scenarios. And so his eyes for proper documentation are just highly tuned. And so I’ve learned a lot from him as well as just applying it and just thinking creatively, like even my spare time, just thinking, how do we make this deal work? And sometimes it can be very frustrating in order to figure this out because even if you’re using AI, which is a big help, like I’ve used AI a ton for…
sorting through how should we adjust terminology, legal agreements, and so forth. even when you use AI for that, you still have to come in with a plan. You still have to understand what the outputs are and what type of questions to ask. Otherwise, you’re just going to get some boilerplate nonsense and so forth. But it can be a good thought partner to go back and forth with these. sometimes, like,
Again, the context matters more than anything when you deal with AI. And so if you don’t even understand what your end goal should be, the chance that you’re going to get a solid solution on your hands is going to be unlikely. with that context in mind, critically here, at least in brief, is that we were dealing with
a land operator who found some of these fantastic deals and we’ve had a lot of meetings and so forth. his investing entity was a self-directed IRA, which has a whole bunch of prohibitions on his own capability to guarantee investments or have like any of his other personal finances touching a particular investment where the IRA is.
Again, it gets complex quickly, but effectively our preferred structure of getting a limited recourse personal guarantee and structuring an operating loan wasn’t going to be a possible fit with that self-directed IRA being involved. And so then we were looking at like a different debt structure, but it really didn’t make sense because
the fact that we couldn’t cross collateralize anything with the operator, like made the debt worthless. Like if something, and again, we have limited recourse situation here. So, you know, we’re willing to take on the risk, the underlying deal risk, but it’s really just bad actor clauses that we’re worried about, you know, there’s fraud or whatever. That’s what we want to protect against from like a personal guarantee perspective. But if we can’t even do that, like there’s no underlying assets for us to tie it to. So like the debt is effectively worthless.
you know, if the deal goes south for whatever reason, and again, these are like, these are higher risk deals. There’s a lot of complexity to them, even for limited capital amounts that are in the deal. or, know, potential million dollar upside here. Like we have to ensure that we’re still putting each dollar to work very carefully and thoughtfully. so what we did in this case is like, okay,
Let’s think through this. We’ve done other structures with investments that we’ve raised for where it was through a LLC structure in the form of a special purpose vehicle, an SPV, and that effectively allowed different investors to come in via an equity standpoint and have ownership within the base LLC that owns the underlying asset. So can we just adapt that? There’s no prohibitions against a self-directed IRA from being
a or having other investors come into the LLC where it’s managing it. So instead of debt, we could structure it to where our LLC would be a limited member within this underlying LLC. So, you know, if something goes wrong, like there’s still, you know, the likelihood that it would end up as a zero, but it’s still inherently more protective legally than debt because that
with the debt, there’s no underlying assets for us to go after, at least in this. We have some ownership of the LLC, albeit limited, that protects us a bit more in regard to the actual deal that we’re trying to close on. Plus, we wanted to structure it in such a way where
Our upside was also boosted just a bit in relation to the level of risk that we were incurring on the deal. And from a structural perspective, it actually made a bit more sense to just build in a promote structure, similar to how we’ve done it for other deals where we’ve been the managing member on. And then we don’t need a personal guarantee or like a UCC one filing, which is generally a filing that goes to.
be recorded against a investing entity that’s incurring debt. And so it’s basically like a tracker, a recorded tracker within the county records to note that yes, there is a lien on this particular entity. So we wouldn’t need to do any of that if we just run it through an equity structure instead.
So like I mentioned all of this, cause like it seems, yeah, clear cut. just thought of this other suggestion and like, was more comfortable initially looking at the debt perspective. But again, I really trust my partner Everett who’s just pointing out, this is just, doesn’t, that this is not an appropriate way from a risk management standpoint to go after this. just like listing out all these reasons. And like, that’s another lesson to this too is like, you know, you, you, you’ve got to have the humility to.
um, you know, adapt and adjust based on the data that’s presented in front of you and other people’s, um, expert opinions. Um, and, uh, you know, think that sometimes can become, you know, harder, but both earlier on your entrepreneurial journey and later on when you’ve developed some success, um, it’s like, yeah, am I really going to back off the direction that I think is appropriate here? Um, but you know,
That’s the thing about a great partner and you know, ever and I have been working together for years and I defer a lot to his judgments when it comes to, um, structures because they’re well thought out. He has the experience and so forth. so, um, like some of it’s just inertia, right? It’s like, okay, I think we’re ready to sign this deal and be squared away here. Um, and now like, I’m going to have to go back and really creatively think through another structure and, you know, produce these other docs and so forth. And it’s like, you know,
Sometimes we get ourselves into poor situations because we rush through things and just don’t want to do the extra work. that’s another subconscious note that we should be tracking as well. it took me a couple hours, like, reformat, yeah, how I’m going to structure this email and…
you know, massage the message here and, fortunately it’s still trending in the right direction. looks like we have buy-in, in order to do it this way. We have a very solid operator who trusts us and, you know, wants to build a longer term relationship, which we appreciate. since we certainly can be sticklers, you know, rightfully so from a documentation perspective, you need to be in order to be a good capital operator. There’s far too many freewheeling operators out there from a capital side.
And it’s going to come back to the bite them sooner than later. I speak from experience from from that side of things. So always have good docs. So all of that is to say, I. As we summarize here, higher level deals require additional work, additional creativity, flexibility,
The fact that, that, you you’re, going to have to work through, uh, work through difficult problems that might not have ever been solved before AI won’t necessarily be able to come rescue you. Somebody else in the industry might not know how to do this either. Um, like that, that is the price of being an entrepreneur. Oftentimes is that you’re having to solve problems that no one else, um, you know, wants to do, uh, or, um, you know, can do. So, you know, you’re stuck with, with, the hard stuff. Um, but that, that’s where the rewards are.
if you can figure out some of these structures that could potentially lead to multi six figure, even seven figure paydays with enough time and repetition. So wouldn’t you make that trade off if you had the choice? So hopefully this one is helpful today. Again, I get, it’s a bit dense with all the back and forth and the different terminology and so forth, but hopefully you got the key takeaways here where you just got to really, really dive in and
you know, solve the hard problems, think through structures and be willing to be creative. So with that in mind, SeriousLand.Capital for any of your funding needs, I will see you next week. Subscribe and share everybody looking forward to next time. Take care now, bye.
