In this episode, a 50-acre DFW property purchased for $400K attracted consistent developer offers averaging one every 7-10 days, but accepting a $900K financed offer (versus cash) required extensive vetting of the buyer’s lender relationships, track record, and LLC structure to ensure the four-month close wouldn’t collapse.
Key Takeaways:
- Vet the Lender’s Decision-Maker Directly Speaking with the actual person who approves loans (in this case a fifth-generation family business operator) provides infinitely more certainty than generic bank letters, especially when they confirm existing relationships with the buyer’s contractor group.
- Understand the Full Capital Stack When buyers finance through newly-formed SPV LLCs, identify which partner controls the equity down payment and verify their cash reserves with proof of funds, not just their ability to secure the loan portion.
- Recent Sales Plus Mortgages Signal Problems Properties bought within five years that still carry mortgages and are owned by LLCs represent high-risk situations where sellers may be underwater or trying to offload problem parcels to greater fools.
- Smaller Deals Within Buyer Track Records Win Working with developers on the smaller end of their typical project size (30-40 lots when they usually do 50-300) reduces execution risk since they’ve successfully handled larger, more complex developments multiple times.
Listen to the full episode for the complete due diligence checklist used to validate financed offers on high-value properties, including specific red flags that kill deals.
(Podcast transcript below)
Hi, Chris over at Serious Land Capital, vacant land funding partner. Today wanted to update you all that we are about to go under contract with that large 50 acre parcel just south of DFW. I know I’ve mentioned it a number of times. Incredible deal that we were able to scoop up for about 400K earlier.
This year, I thought there was as much as like 3X gross margin potential because we divided it up into three, roughly 16 and a half acre. Child parcels, when it was actually on market, it turned out that the child parcels didn’t attract nearly as much interest as the parent parcel.
So I know I remarked last week that there was actually a little bit more hair on the property. once developer interest came in, it turns out the parcel was within the ETJ of Ennis, which was the, closest city nearby. and, water pipes were actually a couple inches smaller in diameter than we thought before. mean, not major issues, even if we had known that before closing, we still would have closed.
Um, cause the deal was still, you know, very, very solid. Plus again, we thought that it was going to be primarily child parcel interest, in which case those two issues would have been, um, less, uh, relevant compared to, you know, full parent parcel developer interest. Um, but we were averaging a developer offer roughly every seven to 10 days. Um, and we found a very good group who is extremely active locally. Um,
and we were reviewing the offer. Key thing, and this is going to be over a 2X gross exit. It’s going to take 120 days to close, possibly even a little bit longer. We wanted to make sure there was some incentive from if we did have to extend that more of their EMD would go hard, which
That is the case within the offer we received. But, you know, that’s just kind of the name of the game. to be like working with developer buyers as they need extra time to go through all the county and city approvals and so forth, especially when properties within an ETJ just given the extra timeline and oftentimes costs associated with that. So that’s just something else that we had to deal with. But we thought, you know, especially in
growing uncertain macro economy that hey taking a north of 2x exit even if it you know this has been listed less than two months and you know presumably going to take four months to close still an absolutely excellent return you know our net profit
Currently is calculating to be roughly $200,000 on our 400k investment. So, you know, that will be a very nice chunk of change to return back and again, uncertain macro and you know, very, large property that we were looking to move. So that’s kind of the bottom line there is just we want to make sure that if we’re going to sign something to get this thing off the market, we really,
be certain about the buyers. And initially we thought it was going to be a cash deal, but now they wanted to do conventional financing. So that’s what I wanted to remark on a bit more today is that they were looking to do 20 % down and the rest financed conventionally. So from our end, we’re like, that’s okay. So long as we understand who’s our lender.
Um, what their track record is, uh, who’s the actual person approving the loan within the lender organization, you know, any steps involved within that to determine how long it might take, um, to do so. Um, and, uh, you know, is there any pre-approval process that could be done, um, even on behalf of an LLC?
And so what these guys were doing is they currently have the contracts, you know, the buyer as a certain LLC, but they’re going to be in the midst of forming a special purpose vehicle LLC, which we do routinely that is going to be split between three different owners. And one of those owners is a very large contractor in the area that does a lot of the underground work for developers.
or development projects rather, they’ve been in business over 30 years. And pretty much instantaneously when we were asking, can we get contact info for the lender, any type of bank letter, et cetera, we got that within 24 hours from a regional bank. And they had said, yes, we work with this certain contractor group, or contracting group, routinely six or seven projects in the past.
no issue at all. And so I spoke then with that contact at the lender and it’s a family business. So he’s like fifth generation. And I think the son of the current CEO of the business, he has direct oversight and decision making over which projects get approved, which financing is approved, the underwriting as well. So
you know, sometimes that banks, underwriting of the asset versus the actual financing component are going to be separate. So you want to understand that process as well. Whenever you’re considering taking an offer, a large offer, especially with conventional financing and usually financing side is going to be handled earlier in the process. Underwriting is, you know, as you well know, if you’ve ever accepted an offer before with conventional financing hat, usually is like last minute.
And that’s usually what’s holding up any deal from closing. So, you know, the fact that we have the financing and underwriting side in a smaller regional bank handling this makes me think it’s going be a lot smoother. And this contact at the lender is like, yeah, these guys are very, very solid. mean, he said, you know, there’s already tacit approval and price, like he’s the approval process anyway. So you can’t ask for anything better there.
And that, you know, even though these guys are going to be financing here, like if they had to close cash, they could do the whole thing. A hundred percent of the deal in cash and certainly the 20 % down that they were looking for on this deal. it’s, know, it’s nearly a million dollar deal. So, you know, that helps a lot just to understand, okay, yeah, these guys are super solid financially, you know, done multiple projects successfully, no issues with.
um, paying back any loans. Plus, uh, this is on the smaller side of projects that they’ve done. Um, you know, they might be able to put 30 or 40 lots on the property that we have, but they routinely do 50 to like 300, uh, lot projects. So they’ve handled all those successfully. So I feel even better being on the smaller side, um, with their ability to, uh, pay off the, um, loan that they were seeking and that, yeah, the financing is already.
guaranteed from, the primary decision maker at the lender. So, that was just another question outside of it, even outside of the financing component is, is, know, for whatever that down payment’s going to be, like figure out who’s paying, the equity into that down payment. Do they already have those cash reserves on hand? Can we get any proof of funds related to that? I, yeah, especially for these larger deals, you just.
want to line up as much as possible, okay, who is responsible for paying all the various components of the deal to ensure that you take a four month close to the finish line, that you’re not going to have any additional surprises. then, yeah, understanding, okay, who is the primary money partner who’s going to be involved in the deal. In this case, it was this contractor group who, you
is primarily managed. Many of these projects in the past, they have a working relationship with the other individuals involved in the deal who all handle different components. And so we feel better, okay, this is like an established third party versus, you know, whoever the principal on the deal is, like trying to spin up a separate LLC to raise the funds on themselves that we would feel less comfortable with versus an established.
company who’s done this before. So that was another key part of our due diligence. So all those questions were asked. They passed with flying colors. They weren’t trying to hide back any information or anything. All this was produced very quickly. Our broker had extensive conversations with the buyers as well, too. He had a good sense for them. Didn’t detect any kind of shady business and so forth as well. So
Ultimately, we are in the midst of getting the offer ready to be signed today. But hopefully some of these items in our own DD process for assessing buyer capability, especially when it comes to financing, helps you when you consider your own offers as well and not to get stuck in a sticky situation. With that, Serious Land Capital for any funding needs.
Check out our Facebook group, Land Daily Diligence for zero cost review of your land deals and landpricer.ai. Got even a lot more beta feedback recently making significant updates to the software here this week and next week, certainly. And looking forward to smoothing out the user experience even more. Subscribe and share, get serious podcasts. Thanks for.
Checking in with this one. See you next time. Take care, bye.
