Updated
Land equity, a builder deposit and seller financing can play different roles in an acquisition and development request. They should appear as separate items in the financing package. Land can represent invested value, a deposit can provide restricted or available cash, and a seller note remains an obligation to repay. Jaken Finance Group reviews the proposed combination case by case, including requests that do not include new sponsor cash at closing.
Begin with three separate questions
The first question is economic: what does the project cost, and what revenue is expected? The second is financing: who provides each source of capital and on what terms? The third is timing: which dollars are available when the project must make a payment?
A single sources-and-uses table cannot always answer all three. A property contribution may help explain the sponsor’s investment without funding a remaining invoice. A committed loan may still require an inspection before an advance. A contract deposit may belong in escrow until a condition is met.
Keep an economic budget, a capital-source reconciliation and a monthly cash schedule. The schedules should agree, but each serves a different purpose. When a number changes, explain which schedule changes with it. This prevents a valuation adjustment from being mistaken for new cash or a new borrowing from being mistaken for project profit.
Document the land before assigning equity credit
Start with the deed, acquisition settlement statement, ownership entity and acquisition date. Record the original consideration and separately identify later expenditures. If the site came from a larger tract, explain the allocation to the current phase and retain the supporting calculation.
Next, list debt and obligations connected to the land. Show balances being paid off, obligations remaining in place and any unresolved title issues. A statement that the land is “contributed free and clear” should agree with the actual ownership and lien records.
Finally, distinguish the value proposed by the sponsor from the value or cost recognized for the financing analysis. A sponsor may believe the land has appreciated after entitlement. The lender’s treatment still requires confirmation. Do not present an assumed equity credit as a settled underwriting fact.
For background on collateral valuation, the interagency residential tract development guidance discusses appraisal treatment of a tract and its development and absorption assumptions. It does not establish the equity credit available from every private capital source.
Separate original cost, debt and accepted contribution
Consider a hypothetical phase with a documented land cost of $1 million and a $300,000 seller note remaining outstanding. Before other adjustments, $700,000 of that cost is not represented by the seller debt. That simple reconciliation is useful, but it is not a lender’s final equity determination.
If another $150,000 land loan must be paid off, include it separately. The cash needed to discharge that loan is a closing use. A new senior advance used for the payoff is a financing source. Neither entry should cause the original land cost to be counted twice in the economic budget.
If the sponsor requests recognition of a different amount, show the requested amount in its own line and describe the basis. Include any appraisal, purchase records or entitlement expenditures being relied on. Keep the originally documented amounts visible so a reviewer can understand the adjustment.
Our tool includes an assumed accepted-land-equity field for that discussion. Changing it does not increase project cash, because recognition of a property contribution is not a cash receipt.
Trace profits contributed from an earlier phase
Successful completion of an earlier phase can support the next request, but the projected profit needs a clear path into available funds. Identify the earlier phase’s closing date, debt payoff, selling costs, reserves and any required distributions. The remaining cash may differ from the accounting profit shown in a project summary.
Then identify the entity receiving that cash and the entity borrowing for the next phase. Explain the proposed contribution or transfer and the approvals it requires. If some proceeds belong to other owners, do not assume all of the money is available to the new project.
Timing is especially important when the earlier phase has not closed. A future contribution can be shown as planned, with its expected date and conditions. It should not appear as cash already in the next phase’s account. Test what happens if the earlier closing is delayed or its net proceeds are lower than projected.
Use dated settlement and bank records once available. They provide a more useful starting point than a statement that the next phase is funded by profits without a reconciliation of the amount.
Treat the seller note as a distinct obligation
Show the note balance, interest calculation, maturity, scheduled payments and any accrued amounts. Identify whether the obligation is secured by the property, unsecured, guaranteed or connected to another agreement. Provide the note and relevant amendments rather than relying on a description in an email.
Subordination needs to address the intended arrangement. Lien priority, payment restrictions and enforcement rights are different subjects. An unsecured note can still require payment before the senior financing has been repaid. A junior lien can still involve consent or remedy issues that need to be addressed in the documents.
Describe the proposed standstill and repayment schedule as requested terms until approved. If seller interest accrues during development, include it in the payoff. If current payments are required, include them in the cash schedule. A note with no current payment can still create a significant obligation at maturity.
Do not quietly relabel the seller balance as sponsor equity. Any special treatment for a financing requirement must be confirmed by the relevant capital source and reflected consistently in the documents and model.
Ask when the seller can receive proceeds
A developer may expect to pay the seller from the first builder purchase. That expectation needs to be tested against the senior lender’s release requirements and the proposed intercreditor arrangement. The same sale proceeds cannot simultaneously satisfy two incompatible repayment promises.
Create a simple payment order for each takedown: closing expenses, required senior payment, permitted seller payment and any remaining project cash. The final order must follow the executed documents. A planning model can show the proposed order while keeping it labeled as an assumption.
Also test an extension. If the last builder purchase moves by three months, does the seller note move with it? What interest accrues? Is an additional consent needed? Keeping the seller’s maturity unchanged in a downside model makes these questions visible early.
The lot takedown financing guide shows why project profitability does not by itself guarantee that every debt payment can be made on the required date.
Classify each builder deposit by use and timing
A deposit schedule should identify the amount paid, the holder, evidence of receipt, refund or forfeiture terms, permitted uses and how credits apply to lot purchases. Where the deposit is held is only one part of the analysis. The contractual restrictions determine whether the developer may spend it.
Separate an initial deposit from future deposits that depend on milestones. A promised additional deposit should enter the cash forecast when it is expected to become available, with the relevant condition visible. Do not treat the entire stated deposit obligation as funded on day one if it is paid in installments.
Document how deposits relate to individual lots. Credits may apply evenly, to specific batches or under another negotiated formula. Our calculator uses proportional credits for an illustrative two-batch schedule. If the agreement credits the final purchases first, the timing differs and the final underwriting model must reflect that actual convention.
Keep refund obligations visible too. A deposit that may need to be returned under a specified circumstance is not automatically permanent sponsor capital.
Avoid counting the deposit twice
Take a hypothetical contract for 40 lots at $160,000 each. Total price is $6.4 million. A $960,000 deposit credited toward that price changes the sequence of receipts; it does not increase the contract value.
If all of the deposit is available at closing, future buyer payments before other adjustments total $5.44 million. If half is available and half remains in escrow, the model initially receives $480,000. It later receives the buyer’s closing payments plus the permitted release of the remaining escrow. Across the entire transaction, total receipts still reconcile to the same purchase price before selling costs.
The cash schedule should show the deposit credit and escrow release in separate columns. That makes a mistake visible if someone adds the full contract price to the initial deposit or deducts an escrow balance that will actually be released. A reviewer should be able to reconcile total receipts without guessing which amounts are already included.
Build the remaining cash budget
List what must be paid from the proposed loan closing onward. Include unpaid construction invoices, remaining work, soft costs, financing expenses, carrying costs and required debt payments. Distinguish contingency already included in a contractor budget from additional contingency being added to the model.
Show timing around draws. If the developer pays labor and materials before reimbursement, the project needs cash during that interval. An approved budget allocation does not establish that reimbursement arrives before the related invoice is due.
Separate cash available to the phase from general sponsor net worth. If a source is dependent on a refinance, asset sale or another project’s closing, show that dependency. Avoid presenting a theoretical financing option as an already committed source.
This is where a request for “no new cash at closing” becomes concrete. The model must identify who pays each opening expense and how the work remains funded afterward. A small closing contribution does not establish that the sponsor has no future cash obligations.
YOUR LOT DEVELOPMENT MODEL
Follow the money through each takedown.
Start with this hypothetical 40-lot example, then enter your assumptions. All results are available without an email.
Additional cash needed includes costs paid before month-end sales. Negative cash is an unfunded gap; it is not an assumed loan advance.
Base and downside
The downside delays both purchases, increases remaining hard and soft costs, and lowers sale prices. Loan and seller-note maturities stay fixed.
| Result | Base | Downside |
|---|
Monthly cash and repayment schedule
| Month | Cost | Draw | Interest | Lots | Sale cash | Senior paydown | Seller payoff | Senior balance | Cash before sale | Ending cash |
|---|
Calculation method and limits
Remaining hard costs, contingency and soft costs are spread equally over your construction months. The proposed draw share applies to those costs. Advances stop at the commitment or maturity. This is a non-revolving facility: repayment never restores availability.
Senior interest uses the balance after the month-start advance, before month-end repayments, at annual rate divided by twelve. It is paid from cash. Include any funded interest reserve in the initial advance. Seller interest accrues simply until its payoff month.
The entire builder deposit is credited pro rata against lot prices. Only the available portion enters cash at closing; the rest is released from escrow with each sale. Actual escrow restrictions and release prices may differ. Carry continues through the last modeled obligation. No tax, lender eligibility decision, appraisal or contract interpretation is calculated.
Peak LTC here is peak senior balance divided by modeled total economic cost, including original land cost, remaining work, selling costs and financing carry. A lender may use another eligible-cost denominator. Assumed accepted land equity is shown separately and never creates spendable cash.
Keep an editable A&D workbook
Get the formula-driven monthly schedule, capital-source reconciliation and project summary. Preview the workbook. Calculator entries stay in this browser unless you choose to include them in a project inquiry.
Reconcile the loan ratios before using them in a request
Write the numerator and denominator next to each percentage. A senior commitment divided by total project cost is different from peak outstanding senior debt divided by that cost. Adding the seller balance produces another measure. Dividing by the builder’s total contract price is a revenue ratio, not automatically a cost ratio.
For a hypothetical $3.6 million commitment and $5 million economic budget, commitment divided by budget is 72%. If peak senior balance is $3 million, peak senior debt divided by the same budget is 60%. Neither calculation is wrong, but they answer different questions.
An appraisal can introduce a separate value denominator. Keep loan-to-value and loan-to-cost labeled separately. Also identify whether the figures include financed interest, fees or additional obligations. This clarity helps prevent a discussion about terminology from distracting from the actual financing need.
The calculator labels its ratio as peak senior debt divided by total modeled economic cost. A capital source may calculate its own eligible-cost ratio differently and may apply additional constraints.
Keep profit separate from cash distributions
Project profit measures revenue less project expenses under a defined basis. A cash distribution depends on cash actually received, debt repaid, reserves retained and the governing agreements. A profitable development can still have a period of negative cash.
Similarly, repaying principal reduces available cash but is not a second construction expense. The land purchased with a seller note belongs in economic project cost; paying off that same note belongs in the cash and debt schedules. Counting both as separate economic costs would understate profit.
When a project summary gives a profit estimate, ask what it includes. Are land basis, financing costs, interest, selling expenses and contingency included? Is the amount before or after partner distributions or taxes? Explain the basis rather than relying on a margin percentage alone.
Our example reports profit before income taxes and owner distributions. It includes modeled project and financing costs, with the assumptions stated beside the tool. The monthly cash schedule provides the separate view of liquidity and debt repayment.
Present the proposal with the open items visible
A strong first package can state: the land contribution requested, seller debt proposed to remain, deposit confirmed, deposit available, senior commitment requested and additional sponsor cash available. It should identify which amounts are documented, assumed or still under negotiation.
Include a base schedule and a downside schedule. Keep maturities fixed when testing delayed sales unless extensions have actually been agreed. Identify the largest cash shortage and the possible source proposed to cover it. That is more useful than adjusting assumptions until the spreadsheet shows no gap.
Download the editable A&D development workbook to organize these figures. The project submission checklist is freely available without an email. When the structure is ready to discuss, request a project review and describe the land, deposit and seller-note treatment you would like considered. Every structure remains subject to individual assessment.