What’s the Difference Between IRR and Equity Multiple?

Understanding returns in the context of real estate investing is no different from understanding returns in the context of any other investment.  The difference is: the returns are “pre-crunched” in a privately-offered real estate investment.  Because you are investing in a thoroughly-vetted and underwritten real estate project, an experienced sponsor is able to provide finite expectations regarding the cash returned to the investor during the project.  An investor should have some idea of the basic terminology underlying investment returns to understand how and when profits will be realized.

Understanding Prefs, Clawbacks, and Waterfalls

The waterfall describes how everybody gets paid. Every investment has a defined waterfall structure; and it’s important to understand how it works. It’s less risky to be paid first, and more risky to be paid last because there might not be any money left to distribute if a deal underperforms.