Lending Lessons Across 250+ Land Deals

We've closed over 250 land deals in the past 5 years. That's roughly a deal every 7 days.

In doing so, we’ve originated over 100 notes and have learned a lot about managing a portfolio of loans.

Proper financing secured by quality property creates successful lending relationships.

To manage a stable loan portfolio:

• Choose the right financing instruments to limit risk.

• Set up lending infrastructure to ensure efficiencies.

• Lend on quality property with an appropriate loan-to-value.

Here are three main lending lessons we've learned after 250 land deals.

1. Choose the Right Financing Instrument

Appropriate financing instruments mitigate risk and create efficiencies. For example, in Arizona there are two primary financing instruments, a deed of trust and a contract for deed.

Broadly speaking, a deed of trust transfers title to a borrower at closing. The trustee then holds a lien until the loan is paid.

Conversely, a contract for deed is an agreement between a lender and borrower. Title is held by the lender until all payments are made, at which time the property is deeded to the borrower. The main benefit of a contract for deed is that it offers a simple forfeiture procedure in case of default.

However, a deed of trust is preferable for a couple reasons:

1. The lender doesn't hold title, mitigating liability for events occurring on the property.

2. The borrower can secure building permits and coordinate other activities without lender intervention.

In short, choosing the right financing instrument mitigates risk and provides operational efficiencies.

2. Utilize Licensed Loan Servicing

Licensed third-party servicers have systems in place to efficiently administer loans. Our servicers help coordinate:

• Loan onboarding

• Compliance

• Payments

• Interest statements

• Loan payoffs

• Loan sales

This provides our fund with greater efficiency at a nominal operating expense, so we can focus on generating value for investors.

3. Create Successful Lending Relationships

Lending on quality property with appropriate LTV (loan-to-value) ratios results in a stable loan portfolio.

When a borrower finances quality property at a good price they want to hold onto it. In turn, we typically sell properties just under market value:

• Our land quickly turns into cash flowing loans.

• Our borrowers get good deals they want to keep.

• We attract borrowers with significant down payments.

So how do we earn returns on land deals?

We produce upside by acquiring undervalued properties, then add additional value by subdividing, developing and repositioning. In turn, we originate loans that:

• Have lower LTVs

• Are secured by quality land

The result is a portfolio of stable loans.

We've learned a lot over 250+ deals and look forward to growing lending operations in support of our investors.