Equity Waterfall Calculator

An equity waterfall is the structure that determines how profits from a real estate investment are split between the General Partner (GP — the operator) and the Limited Partners (LPs — the passive investors). Profits "fall" through sequential tiers, with each tier defining a different split ratio.

Preferred return: LPs typically receive a preferred return (commonly 6–10%) before the GP receives any promote. This compensates passive investors for opportunity cost and risk. The preferred return is distributed proportionally based on each partner's equity contribution.

GP promote: The promote (or carried interest) is the GP's disproportionate share of profits above certain return hurdles. A GP who puts in 10% of equity might receive 20–40% of profits above the preferred return — that's the promote compensating them for sourcing, managing, and executing the deal.

Why it matters: The waterfall structure aligns incentives. LPs get downside protection through the preferred return. GPs are motivated to maximize returns because their economics improve dramatically as the deal outperforms. A well-structured waterfall makes both sides feel fairly compensated.

Common structures: A typical syndication might use an 8% pref with a 70/30 split (LP/GP) above the pref, stepping to 50/50 above a 15% IRR. More aggressive structures might have a 60/40 or even 50/50 split above the pref, with higher promotes at higher hurdle rates.