Waterfall
The order profits get distributed in a syndication. Usually starts with paying investors back their capital, then paying a preferred return, then splitting the rest between investors and the sponsor. Rules can get complicated.
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Part 1 of 4
Why a seller cares
The waterfall is the order a syndicate's profits are paid out: capital back, then the preferred return, then the split. A seller who becomes an investor in the buyer's deal is somewhere in that order, and the order decides what they see.
Part 2 of 4
A simple example
A syndicate returns capital first, then an 8% pref, then splits 70/30. On a sale, $1,000,000 of profit flows through those three steps in order.
| The tier | Who is paid |
|---|---|
| Return of capital | Investors, dollar for dollar |
| The preferred return | Investors, up to 8% a year |
| The split | 70% investors, 30% sponsor |
The waterfall is a queue. Investors are near the front; the sponsor's big share is at the back.
Part 3 of 4
What people get wrong
That everyone is paid at once in proportion. Each tier fills before the next gets a dollar.
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
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