Preferred return
The return investors get paid first in a syndication before the sponsor earns their promote. Usually shown as a percentage, like an 8% pref. Not a guaranteed payment, just first in line.
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Part 1 of 4
Why a seller cares
The preferred return is what a syndicate's investors get paid before the sponsor takes a share, and it is not a promise. A seller who takes part of the price as an investment in the buyer's deal is relying on it.
Part 2 of 4
A simple example
A buyer offers to pay $700,000 for your building with $100,000 of that as your investment in their partnership at an 8% pref.
| What the pref means | What it does not |
|---|---|
| Investors are paid first, up to 8% a year | Promise that 8% is paid |
| Unpaid pref usually accrues | Mean the money is safe |
| The sponsor's promote comes after | Mean the sponsor is paid nothing meanwhile |
The pref is a place in line, not a check in the mail.
Part 3 of 4
What people get wrong
That an 8% pref is an 8% return. It is the first 8% if there is 8% to pay, and there is not always.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
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