Jacob’s Ranch
The 1st land lending opportunity with McCleery Company, Absolute Foresight Enterprises, and Cable Construction.
In January 2023 Luke introduced Daine Clark to Steve McCleery. The intent of the meeting was to have development funds deploy into deals that Daine was working on. The lunch went well and there were synergies. In fact during the meeting we indicated that there is a niche market for people that want to build houses and need to take them out on seller financing. McCleery company could fund the land purchase, and construction. Then Daine could take McCleery Company out on the back end by providing seller financing to the builder/buyer. Though there were synergies Steve decided he wanted to deploy capital to development specific opportunities instead of deploying capital to single family projects.
A Referral – April 2023
A few months later Luke received a call from Carlos with Cable Construction. Carlos came by referral from Daine Clark. Daine is a great mentor for Luke. Daine is a hard money lender and will provide funds to fix and flippers for residential rehab projects. Carlos called Daine to ask for funds and Daine directed him to Luke and Steve.
Carlos described to Luke and Steve his goals for expanding his business. He desired to build 3-5 more $1M single family build and hold projects in 2023. His problem was that banks were only willing to fund one project at a time.
We created a construction cost budget for the houses and looked at past projects that Carlos had worked on. We then directed him to find lots that fit his criteria and would work with the structure we created.
Carlos found 3 lots in Saratoga Springs that met his criteria and works with Bronson Gomez to be his buyers agent and purchase the 3 lots in a newly developed community called Jacob’s Ranch.
The Structure – Carlos gathered specific quotes from all the trades needed for constructing these houses. All bids were added to the construction budget spreadsheet. However numbers weren’t adding up if we provided funding to purchase the lots AND the vertical construction loan. This would put the McCleery Company assets at risk during the build if something were to happen to Carlos during the project. There would be a potential 50% equity position for McCleery Company after the refinance, however this equity would not be secure until the house was completed in good market conditions.
The structure was adjusted so that we would purchase the lots. They would be in the name of an LLC that McCleery Company 100% controlled. Carlos would provide a 30% down payment on each lot. Then Carlos would get a construction loan on each property and McCleery Company would give a first position to the lender. This provided security to fire sale the properties under market value if needed (Exit #1). If something were to happen to Carlos throughout the process we could take all the bids and budget and take the project to vertical to sell or hold (Exit 2 & 3). All work completed on the site would be owned by the McCleery Company LLC until it is to be refinanced out in a holding LLC that Carlos owns (Exit 4 – the primary exit plan).
Win Win – There is a huge upside for Carlos on the refinance. He will have enough equity on each house at the end that he won’t need to provide a down payment. He’ll be able to receive the capital investment for his downpayment on the lot from the refinance as well. He will then be able to have about 25%-30% equity and a cashflowing rental. Letting him take depreciate the rental and help him save on his taxes. Huge win win for all parties.
Closing – June 2023
We purchased the land to fund Carlos’ 3 build and hold properties.
What is also unique about this deal is that it somewhat resembles the niche highlighted in the conversation that Daine, Steve, and Luke had in January.
Milestones:
– This deal represents the first deal that Luke and Steve funded together.
– Though there are other development deals in the pipeline this project provided a hawking and acquisition payment per virtual of the McCleery Company mentoring structure.
Key Take Aways:
– The #1 lesson learned with Herman’s Corner was the price at which finished lots should be purchased for. The #2 lesson was having adequate exit strategies in place to be able to safely exit the project at any moment. With Jacob’s Ranch we made sure to check these two boxes.
– Deals that don’t pencil at first can work out if both sides express what they need and are willing to provide some give and take. We needed more security. Carlos provided a down payment. We control the land. Carlos get’s 100% of the upside.
– Relationships are key. Although the lunch with Daine did not turn out how Luke had envisioned, it lead to a referral that paid off. Daine received a friendly Amazon gift card for referring a client to us that we did a deal with.
