What is the flow of funds for a typical land deal (2 of 2)


HL sells each ranchette on owner financing. Each time it does, it collects a down payment of approximately $20K and takes back a note for about $230K at 10.9% over 20 years.


Upon selling the land and generating the note, HL sells the note to Hawthorne Interests (HI). HL pays off its $125K loan to HIF, and HIF lends just shy of $220K to HI with the $230K note as collateral.


In this scenario, the ranchette buyer/borrower pays HI $2,358.40 per month, and HI pays HIF $2,122.56 per month, which is 10% less than the incoming payment. This provides HI with a positive cash flow of $235.84 per month.


HL and HI receive a capital infusion equal to the difference between the $125K loan payoff and the new $220K loan, plus the $235.84 per month in positive cash flow over 20 years.


HIF earns interest income from various sources throughout this process. At first, it earns it from a 10% interest-only loan to HL. Later, it earns it from a 10% amortized loan to HI. In addition, it earns interest income on any capital that it has taken on but has not loaned out.


Combined, these three sources of interest income provide HIF with the income it needs to provide a 10% monthly preferred return to its investors.


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