Exhibit 10.4


 


ALLOCATION POLICY AGREEMENT

BY AND AMONG

UNITED DEVELOPMENT FUNDING, L.P.,

UNITED DEVELOPMENT FUNDING II, L.P.,

UNITED DEVELOPMENT FUNDING III, L.P.,


UNITED DEVELOPMENT FUNDING IV,

UNITED DEVELOPMENT FUNDING LAND OPPORTUNITY FUND, L.P.,

UNITED DEVELOPMENT FUNDING INCOME FUND V,

UMTH LAND DEVELOPMENT, L.P. AND


UDFH LAND DEVELOPMENT, L.P.


 


This Allocation Policy Agreement (the “Agreement”)
is executed this 25 day of July, 2014, by and among United Development Funding, L.P., a Delaware limited partnership (“UDF
I”), United Development Funding II, L.P., a Delaware limited partnership (“UDF II”), United Development Funding
III, L.P., a Delaware limited partnership (“UDF III”), United Development Funding IV, a Maryland real estate investment
trust (“UDF IV”), United Development Funding Land Opportunity Fund, L.P., a Delaware limited partnership (“UDF
LOF”), United Development Funding Income Fund V, a Maryland real estate investment trust (“UDF V,” and together
with UDF I, UDF II, UDF III, UDF IV and UDF LOF, the “UDF Funds”), and UMTH Land Development, L.P., a Delaware limited
partnership (“UMTH LD”) and UDFH Land Development, L.P, a Delaware limited partnership (“UDFH LD”).


 


FACTUAL BACKGROUND


 


1.          The
UDF Funds invest, or will invest, in the acquisition of land and development of single-family lots, construction of single-family
homes and model homes, and/or the acquisition of model homes and finished lots utilizing a diverse range of capital structures
such as equity investments, joint venture participations, mezzanine loans, subordinated loans and senior loans.


 


2.          The
lifecycle of single-family lot development and home construction generally begins with the acquisition of land for development
of single-family lots, followed by the entitlement and engineering of the subject property, followed by the development of raw
land into a finished lot, followed by the construction and sale of a single-family home. There are differing levels of capital
appreciation, cash flow, loan-to-value ratios, development risk, market risk and investment yields over the course of the development
lifecycle.


 


3.          Each
of the UDF Funds invests, or will invest, in substantially similar land development opportunities, although such investments may
be made at different points in the development lifecycle in accordance with the investment criteria, yield requirements, cash flow
expectations, investment horizon and risk tolerances of the respective UDF Fund at the time the investment is made. In addition,
the UDF Funds will determine to exit investments in land development and home construction projects at different points in the
development lifecycle in accordance with the investment criteria, yield requirements, cash flow expectations, investment horizon
and risk tolerances of the respective UDF Fund at the time the exit is made.


 


4.          UDFH
LD is the asset manager of UDF V. In exercising its duties to UDF V, UDFH LD will manage each investment in accordance with the
investment criteria, yield requirements, cash flow expectations, investment horizon and risk tolerances of UDF V as each investment
progresses.


 




    	 



    	 



    

  


5.          UMTH
LD is the asset manager of UDF I, UDF II, UDF LOF and UDF IV and the general partner of UDF III. In exercising its duties to each
of the UDF I, UDF II, UDF LOF, UDF IV and UDF III, UMTH LD will manage each investment in accordance with the investment criteria,
yield requirements, cash flow expectations, investment horizon and risk tolerances of the respective fund as each investment progresses.


 


6.          Certain
officers, general partners, limited partners and owners of UDFH LD also serve as officers, general partners, limited partners and
owners of UMTH LD; therefore, the UDF Funds each recognize that, in exercising its duties to each of them, UDFH LD and UMTH LD
will encounter conflicts of interest. Thus, each of the UDF Funds, UDFH LD and UMTH LD seeks to equitably apportion investment
opportunities among and between such entities in accordance with each fund’s investment criteria, yield requirements, cash
flow expectations, investment horizon and risk tolerances at the time each transaction opportunity is presented by UDFH LD and/or
UMTH LD.


 


AGREEMENT


 


NOW, THEREFORE, in consideration
of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:


 


1.          In
each case in which there is an opportunity to purchase, originate or invest in a transaction, including any investment that qualifies
for the investment criteria, yield requirements, cash flow expectations, investment horizon and risk tolerances of any two or more
UDF Funds (an “Investment Opportunity”) which are described generally in Appendix A hereto, the Investment Opportunity
shall be allocated as follows:


 


Each Investment Opportunity will
be allocated to the UDF Fund with the highest “Cash Available Percentage,” which is defined as the ratio of the Cash
Available for Investment (as defined below) over the total Equity Invested (as defined below). For purposes of this Agreement,
“Equity Invested” shall mean the dollar amount of both direct investments and retained earnings as determined by the
Most Recent Financial Statements, and the “Most Recent Financial Statements” shall mean the most recently available
audited or unaudited financial statements prepared by the respective entities with respect to the most recent calendar quarter.
For purposes of this Agreement, “Cash Available for Investment” shall mean cash on hand available to be invested, not
including any lines of credit or other borrowing facilities, as determined by the respective fund asset manager as of the same
date as the Most Recent Financial Statements.


 


2.          In
each case in which an Investment Opportunity is presented to a UDF Fund, the transaction opportunity shall be structured in compliance
with the investment limitations and requirements set forth in the applicable organizational and operational documents of the respective
UDF Fund and any applicable prospectus or offering memorandum relating to the respective UDF Fund. Unless the organizational and
operational documents of the respective UDF Fund are more restrictive, the following terms apply:


 


A.           UDF
V shall not (i) sell any loan to, (ii) acquire any loan from, or (iii) participate in any loan with any of UDFH LD, UMTH LD or
any other UDF Fund; and


 


B.           UDF
V shall not (i) sell any asset to, (ii) acquire any asset from, (iii) participate in any asset with, or (iv) invest jointly in
any asset with any of UDFH LD, UMTH LD or any other UDF Fund.


 




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3.          Notwithstanding
anything contained herein to the contrary, UDFH LD and UMTH LD shall exercise their best efforts to reasonably allocate Investment
Opportunities amongst the UDF Funds as set forth herein, provided, however, that UDFH LD and UMTH LD may use approximations and
rounding. UDFH LD and UMTH LD will rely on their Investment Committee to apply each UDF Fund’s investment criteria, yield
requirements, cash flow expectations, investment horizon and risk tolerances to recommend an investment or sale by the respective
UDF Funds. Further, notwithstanding anything contained herein to the contrary, UDFH LD and UMTH LD and their agents cannot give
assurances that they will recommend investment in all Investment Opportunities of which they become aware that are suitable for
one or more UDF Funds on an equal allocation amongst such entities.


 


4.          This
Agreement shall be governed and construed under the laws of the State of Texas.


 




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IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.


 


	 	By:	UDFH Land Development, L.P.,
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	/s/ Cara D. Obert
	 	 	Cara D. Obert
	 	 	Chief Financial Officer
	 	 	 	 	 
	 	By:	UMTH Land Development, L.P.,
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	/s/ Cara D. Obert
	 	 	Cara D. Obert
	 	 	Chief Financial Officer
	 	 	 	 	 
	 	By:	United Development Funding, L.P., 
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	United Development Funding, Inc.,
	 	 	 	its general partner
	 	 	 	 	 
	 	 	 	By:	/s/ Michael K. Wilson
	 	 	 	Michael K. Wilson
	 	 	 	Director, UMT Services, Inc.
	 	 	 	 	 
	 	By:	United Development Funding II, L.P.,
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	United Development Funding II, Inc.,
	 	 	 	its general partner
	 	 	 	 	 
	 	 	 	By:	/s/ Michael K. Wilson
	 	 	 	Michael K. Wilson
	 	 	 	Director, UMT Services, Inc.
	 	 	 	 	 
	 	By:	United Development Funding III, L.P.,
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	UMTH Land Development, L.P.,
	 	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	 	By:	/s/ Cara D. Obert
	 	 	 	Cara D. Obert
	 	 	 	Chief Financial Officer


 




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	 	By:	United Development Funding Land Opportunity Fund, L.P.,
	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	By:	UDF Land GenPar, L.P.,
	 	 	 	a Delaware limited partnership
	 	 	 	 	 
	 	 	 	By:	/s/ Michael K. Wilson
	 	 	 	Michael K. Wilson
	 	 	 	Director, UMT Services, Inc.
	 	 	 	 	 
	 	By:	United Development Funding IV,
	 	 	a Maryland real estate investment trust
	 	 	 	 	 
	 	 	By:	/s/ Stacey H. Dwyer
	 	 	Stacey H. Dwyer
	 	 	Chief Operating Officer
	 	 	 	 	 
	 	By:	United Development Funding Income Fund V,
	 	 	a Maryland real estate investment trust
	 	 	 	 	 
	 	 	By:	/s/ David Hanson
	 	 	David Hanson
	 	 	Chief Operating Officer


 




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APPENDIX A


 


Investment Criteria, Yield Requirements,
Cash Flow Expectations,


Investment Horizons and Risk Tolerances
of the UDF Funds


 


UDF I:


 


UDF I provides asset level and fund level
leverage and generally seeks to invest in land acquisition and development loans and participation agreements, provides equity
as an investment in entities that acquire and develop single-family residential properties, and provides credit enhancements to
developers and entities in connection with third-party financing of land acquisition and development loans.


 


UDF I generally seeks capital appreciation
through value enhancement, higher yields and internal rates of return and lower-to-more-moderate cash flow from loans and equity
investments with a mid- to long-term investment horizon and high risk tolerances.


 


UDF II:


 


UDF II provides asset level and fund level
leverage and generally seeks to invest in land acquisition and development loans and participation agreements, provides equity
as an investment in entities that acquire and develop single-family residential properties, and provides credit enhancements to
developers and entities in connection with third-party financing of land acquisition and development loans.


 


UDF II generally seeks capital appreciation
through value enhancement, higher yields and internal rates of return and lower-to-more-moderate cash flow from loans and equity
investments with a mid- to long-term investment horizon and high risk tolerances.


 


UDF III:


 


UDF III does not make equity investments and
does not utilize permanent leverage and generally seeks to (i) invest in secured real estate loans made to persons and entities
for the acquisition of parcels of real property to be developed as single-family residential lots that will be marketed and sold
to home builders, (ii) secure such loans by a first lien or a second lien on real property or a pledge of the borrowing entities’
ownership interest, and (iii) provide credit enhancements to developers, homebuilders and other real estate entities in connection
with third-party financing of home construction loans and land acquisition and development loans.


 


UDF III does not seek capital appreciation
and generally seeks moderate yield and higher cash flow from loans with a mid-term investment horizon and a moderate risk tolerance.


 


UDF LOF:


 


UDF LOF generally seeks to invest in and finance
finished lots, paper lots and land to be developed into residential lots and model and finished new home inventory.


 


UDF LOF generally seeks capital appreciation,
high yields and low-to-moderate cash flow from loans and equity investments with a mid-to-long-term investment horizon and a high
risk tolerance.


 




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UDF IV:


 


UDF IV generally seeks to (i) invest in land
acquisition and development loans, finished lot loans, model and new home inventory, loans for the construction of new homes and
participation agreements, (ii) secure such loans by either a first lien or a second lien on real property or a pledge of the
borrowing entities’ ownership interest, (iii) invest in the equity of entities that acquire and develop single-family residential
properties, (iv) invest in discounted cash flows secured by municipal assessments levied on real property and (v) provide credit
enhancements to developers and entities in connection with third-party financing of land acquisition and development loans.


 


UDF IV generally seeks moderate yields and
moderate-to-high cash flow from loans and capital appreciation from equity investments with a mid-term investment horizon and a
low risk tolerance.


 


UDF V:


 


UDF V generally seeks to (i) invest in land
acquisition and development loans, (ii) secure such loans by either a first lien or a second lien on real property or a pledge
of the borrowing entities’ ownership interest, (iii) invest in the equity of entities that acquire and develop single-family
residential properties and (iv) provide credit enhancements to developers and entities in connection with third-party financing
of land acquisition and development loans.


 


UDF V generally seeks moderate yields and
moderate-to-high cash flow from loans and capital appreciation from equity investments with a mid-term investment horizon and a
low risk tolerance.


 




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