Preferred capital into a nine lot split where I can't verify a single closed lot price

$310,000 for 1,900 feet of gravel road plus engineering is $163 a foot with the engineering inside it. That's tight even for gravel. What's the base depth the county wants, and how many culverts. Every drainage crossing on a rural road is a pipe, a headwall and a permit, and I've watched a single crossing eat $30k when the inspector wanted it upsized.

Also ask whether the county requires a bond or a letter of credit for the road before they'll record the final plat. If it does, that money is capital nobody has budgeted, and it's frozen until the road passes final inspection, which can be a full season after the work looks finished.

The risk order here goes road cost first, then absorption, then price. He's showing zero contingency on a $310k line.

Why is this preferred equity and not a note secured by the land?

If you're funding the road, you're the money that creates the thing everyone is going to get paid from, and you're taking last position on a $200k margin that three people in this thread already think is soft. An 11% accrual with no current pay and no release schedule means you find out how the deal went in month 24.

His reason for refusing per-lot releases is that the seller carry has its own payoff terms. That's an argument for reading the seller note, not an argument against your protection. If the seller wants $X per lot released, the remaining proceeds per closing are a known number and yours can sit right behind it.

His stated reason for refusing release language is the thing you should chase, and it's checkable in an afternoon. Get a copy of the seller carry note and read the partial release provision. Seller notes on acreage usually do one of three things and each changes your answer: no release at all until paid in full, a fixed release price per lot, or a release based on a percentage of the appraised or contract price. If the seller's note has no partial release, the plat can be recorded and the lots still can't convey clean until the whole $420,000 is satisfied, and his month 12 to 22 absorption schedule is impossible as written. That would be the real reason he doesn't want to talk about release schedules.

On the price you can't verify. I lease and manage rural single family and I sit across from these lot buyers constantly. In a state that doesn't publish sale prices, the three places I've had luck are the local title company, who will often talk about ranges even when they can't give you a document, an appraiser who does rural land in that county and will pull their own file work for a fee, and the agents who represented the buyers rather than the sellers. Recording and disclosure practice differ by state, so confirm what your title company is actually permitted to share before you build anything on it. Pay the appraiser. On a $220,000 check, $900 for a real opinion on nine lots is nothing, and get them to opine lot by lot the way thicket said, not on an average.

The other thing I'd fix regardless of price. His absorption starts at month 12. Preliminary approval, road construction, as-built survey, final plat recording, and only then can a lot convey. If any of that slips a season, and around here final plats sit at the county for weeks longer than anyone plans, month 12 becomes month 17 and your accrual runs five extra months into a margin that's already thin. I'd want the road done and the plat recorded before the clock on his projection starts, or I'd want the accrual rate to change once it hasn't happened.

So two documents before you decide anything. The seller note's release language and an independent lot by lot price opinion. If the release language is bad, there's no rate that fixes it.

Question about how this actually gets enforced. If lots sell slower than his model and month 30 arrives with $220k plus accrued sitting there unpaid, what does ledger do? He's behind the seller carry and he's preferred equity, so there's nothing to foreclose on. Is it just a conversation, or is there language people use that gives the money some teeth without making it a loan?

Also @trellis, if the seller note has no partial release, does that kill the deal outright or does the sponsor just have to raise more so he can pay the $420k off before he starts selling?

11% accrued for last-in capital funding the road on a nine lot split with unverifiable retail pricing looks cheap to me, and I say that as someone who'd like to be putting money into exactly this shape of deal.

If the deal works, he pockets $200k on $180k of his own cash and you get 11%. If the price is $126k instead of $148k, you're the one eating it. That's not a split of the outcome, it's you selling him insurance at 11%.

I'd rather see either a piece of the profit above a hurdle or a rate that steps up after month 18, which also puts pressure on his absorption schedule in a way a flat accrual doesn't. And I'd want @trellis's appraisal in hand before I priced any of it, because the right rate for $148k lots and the right rate for $126k lots aren't close to each other.