Three people want into a land assemblage with no cash flow for four years

Working on tying up four contiguous parcels at the edge of a growing small city, 31 acres total across the four, currently zoned agricultural with the comprehensive plan showing residential in that direction. Two are under contract, one owner is talking, the fourth is an estate and slow.

All in I need about 310k to close what I have plus carry the taxes and a survey and the entitlement work. I have 90k. Three people have said yes to the rest, 220k between them, all of whom I've known a long time.

What I keep chewing on is the reporting. Every structure I've read about assumes there's a quarterly distribution and an occupancy number. I've got neither. This produces nothing for maybe four years and the only news between now and then is a planning commission meeting that gets continued twice.

So what does an investor update look like when nothing happened? If I send a quarterly that says taxes paid, still waiting, three times in a row, I've trained them to stop reading. If I only write when there's news, the first year they hear nothing and start wondering.

Also the money has to cover carry. Property taxes on the four run about 6,100 a year now and will jump if we get the rezone. That's coming out of the 310k, which means their capital is being spent on nothing visible.

The specific thing in front of me: do I set a fixed update schedule I might have nothing to fill, or do I promise updates on milestones and define the milestones up front? Leaning toward the second but I don't like that I get to decide what counts as a milestone.

2 replies

1laurenkim53Passive

Do both. Fixed schedule, and the fixed update includes the boring numbers whether or not there's news. Cash remaining of the 310k, taxes paid year to date, status of each of the four parcels in one line each, and next expected date on the entitlement calendar.

A quarterly that says nothing moved and here's the cash balance is not a wasted email. It tells them the money is still there and someone is counting it. The updates people stop reading are the ones with a paragraph of optimism and no figures.

The carry number is what I'd put at the top. If 6,100 a year jumps to 19,000 after a rezone, say now how many years of that the 310k covers, because that's the question they'll ask in year three and you'd rather have answered it in year one.

2aliyah_bAU2APRO6

Milestone based updates would make me nervous as the investor, since you're right that you define the milestone. Hollow's version fixes that.

One more thing to write down before you take the money: what happens if the estate parcel never comes together. Does the deal still work on three, and if it doesn't, who decides to sell and when? Four years of silence is survivable. Four years of silence followed by a surprise about the fourth parcel is not.

Three people want into a land assemblage with no cash flow for four years

2 replies