Investment Structure & Profit Distribution

​Our investment model is designed to prioritize investor capital preservation while aligning the interests of the General Partner (GP) with our Limited Partners (LP). We utilize a “70/30 Waterfall” structure, which is the cornerstone of all our offerings.

1. Tier One: Preferred Return (The “Pref”)

​Investors receive a cumulative 8% preferred return on their unreturned capital contribution. This means the first dollars of distributable cash flow go entirely to our investors before the GP receives any share of the profits.

2. Tier Two: Return of Capital

​Upon a capital event (such as a refinance or the sale of the asset), 100% of available proceeds are distributed to the investors until their initial principal investment has been fully retired.

3. Tier Three: The 70/30 Split

​Once investors have received their 8% preferred return and 100% of their initial capital back, all remaining “excess profits” are distributed as follows:

  • 70% to the Investors (LPs)
  • 30% to the Sponsor (GP)
  • Consistency: By keeping this 70/30 structure as our “common denominator” across all deals, you can easily compare the underlying real estate assets without having to recalculate complex legal hurdles.
  • Motivation: The 30% promote incentivizes our team to maximize the exit value, as our primary compensation is earned at the back end of the deal through high performance.

Showing a “dollars and cents” example is often the most effective way to build trust with crowdfunding investors. It moves the conversation from abstract percentages to tangible outcomes.

​Here is how a $100,000 investment would look over a 5-year hold period, assuming a successful “value-add” execution.

Hypothetical Investment Summary ($100k Unit)

PhaseInvestor ReceivesGP ReceivesNotes
Annual Cash Flow (Years 1–5)$32,000$0Based on an 8% Preferred Return ($8k/year).
Return of Capital (Sale Year)$100,000$0Investor’s initial principal is paid back first.
Split of Excess Profit$35,000$15,000Calculated from a hypothetical $50k profit pool (70/30 split).
TOTAL PAYOUT$167,000$15,000

How the Waterfall Math Breaks Down

​To arrive at these numbers, let’s assume the property is sold in Year 5, and after paying off the mortgage and returning everyone’s initial capital, there is $50,000 of “excess profit” per $100,000 unit.

Step 1: The Preferred Return (The “Safe” Money)

​You paid the investor 8% annually from the operations.

  • $8,000 x 5 years = $40,000 total.
  • Note: If the building only made 6% in Year 1, the remaining 2% “accrues” and is paid out later before the GP gets anything.

Step 2: Return of Principal

​The property sells. The first $100,000 of the sale proceeds goes straight back to the investor.

Step 3: The 70/30 Split (The “Upside”)

​There is $50,000 left over. This is where your “Common Denominator” kicks in:

  • Investor Share (70%): $50,000 × 0.70 = $35,000
  • GP Share (30%): $50,000 × 0.30 = $15,000

The Final Result for the Investor

  • Total Profit: $67,000 ($32k cash flow + $35k split)
  • Total Return on Investment (ROI): 67%
  • Average Annual Return: ~13.4%
  • Equity Multiple: 1.67x

Why this is attractive to the GP

​Even though you “only” took $15,000 from this one investor, remember that in a crowdfunding deal, you might have 50 investors at this level.

  • GP Promote: $15,000 × 50 investors = $750,000 profit for the GP (plus any acquisition or asset management fees you charged along the way).

Would you like me to help you draft the “Risks & Disclosures” section that typically follows this table in a formal offering document?

In a crowdfunding environment, being transparent about risks isn’t just a legal requirement—it’s a massive trust-builder. Investors are more likely to commit when they see you have a plan for when things don’t go according to the spreadsheet.

​Here is a draft of the Risks & Disclosures section to follow your 70/30 profit table.

Risk Factors & Investor Disclosures

​While the 70/30 split is designed to align the Sponsor’s success with that of the Investors, all real estate investments carry inherent risks. Investors should consider the following before committing capital:

1. Variation in Cash Flow (The “Pref” is not Guaranteed)

​The 8% Preferred Return is a priority of payment, not a guaranteed interest payment. If the property’s Net Operating Income (NOI) is insufficient to cover the Pref in a given year, the unpaid balance will accrue and be paid out from future cash flow or sale proceeds before the GP receives a promote.

2. Market & Economic Risk

​Real estate values are subject to market fluctuations, interest rate changes, and local economic shifts. A decline in market value could result in a lower-than-anticipated “Excess Profit” pool at the time of sale, potentially reducing the final 70/30 split.

3. Liquidity Risk

​This is a long-term investment with a projected hold period of 4–5 years. Unlike stocks, there is no secondary market for these shares. Investors should be prepared to hold their position until a capital event (refinance or sale) occurs.

4. Execution Risk

​The success of the “Value-Add” strategy depends on the Sponsor’s ability to renovate units, manage expenses, and increase rents according to the business plan. Delays in construction or higher-than-expected vacancy rates could impact the timing and size of distributions.

5. Pro-Forma vs. Actual Results

​The table provided in the previous section is a hypothetical illustration based on our current pro-forma assumptions. Actual results may vary significantly based on the performance of the asset.

GP/LP Alignment Note

“To mitigate these risks, the Sponsor typically co-invests alongside the Limited Partners. This ensures we have ‘skin in the game’ and are personally incentivized to execute the business plan and protect investor principal.”

Next Steps for Your Offering

​Now that you have the Structure, the Math, and the Disclosures, the next step is usually defining the Fees.

​Common fees in a crowdfunding deal include:

  • Acquisition Fee: 1%–2% of the purchase price.
  • Asset Management Fee: 1%–2% of gross revenue.
  • Disposition Fee: 1% upon sale.

Would you like me to add a “Fee Schedule” section to this document to complete the full investor picture?

Adding a Fee Schedule is the final piece of the puzzle. In crowdfunding, transparency regarding fees is often what separates a “professional” sponsor from an “amateur” one.

​While the 70/30 split is how you share the profits, the fees are how you cover the costs of running the deal (staff, overhead, and legal).

Fee Schedule

​The following fees are standard for our offerings and are designed to cover the operational costs of identifying, acquiring, and managing the asset.

Fee TypeAmountFrequencyDescription
Acquisition Fee1% – 2%One-timePaid at closing for sourcing the deal, performing due diligence, and securing financing.
Asset Management1% – 2%Monthly/QuarterlyPaid from gross revenue for the ongoing oversight of the property manager and execution of the business plan.
Refinance Fee1%One-timePaid if the GP successfully refinances the property to return capital to investors early.
Disposition Fee1%One-timePaid upon the successful sale of the asset to cover the costs of the exit process.

Strategic Note: The “Fee vs. Promote” Balance

​Because you have chosen a 70/30 split (which is quite healthy for the GP), some investors may look for a “lower-fee” environment.

  • The “Friendly” Approach: You might choose to cap your Asset Management fee at 1% if you are taking a full 30% of the profits. This tells investors: “I only make the big money if YOU make the big money.”
  • The “Institutional” Approach: If the deal is very complex (like a heavy renovation), charging 2% for both Acquisition and Asset Management is standard to ensure you have the resources to do the job right.

Summary of the Full Investor Package

​You now have a complete, professional framework for your crowdfunding deals:

  1. The Common Denominator: A consistent 70/30 equity split.
  2. The Waterfall: 8% Pref \rightarrow 100% Return of Capital \rightarrow 70/30 Split.
  3. The Illustration: Clear “dollars and cents” math for the investor.
  4. The Guardrails: Comprehensive Risks & Disclosures.
  5. The Compensation: A transparent Fee Schedule.

Would you like me to compile all of these sections into a single, cohesive “Investment Executive Summary” document that you can save or print?