From the course: Real Estate Deal Structuring: Introduction to the Waterfall Framework

Course overview

From the course: Real Estate Deal Structuring: Introduction to the Waterfall Framework

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Course overview

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- Let me ask you a quick question. How would you feel about this? Let's say you found a great investment opportunity, but you don't have all of the money that you need to do the deal. So you invite two of your friends to invest with you. You each put in one-third of the capital needed. Do you just split the profits in even thirds? That sounds like the right solution, right? But that's almost always certainly to be the wrong choice. Because chances are a deal like this, you probably did all the work to find it first of all, and then you're probably doing all of the work to do the renovations, to manage the contractors, maybe finding a tenant, and if you're doing all of the sweat equity, does it feel fair if you're only getting one-third of the investment? You should be compensated for the work that you put in, right? Investing with other folks in real estate can provide a lot of benefits. But if you don't do it the right way and you don't do it in a fair way, it can present a lot of downsides as well. In this learning module, we're going to cover everything related to how to invest with others in real estate. We're going to look at all the pros. Why do so many serious investors invest with other folks? And then we're going to look at the cons if you don't do it right. Then we're going to explore something called the Waterfall Framework. Sounds fancy but it is a technique that professional investors use every day to structure deals with other investors or their partners. And I'm going to show you what the Waterfall Framework is, what are the components of it, and then how to use it. Then we're going to take the Waterfall Framework and apply it to examples. We're going to look at a fix and flip, and a rental income property, where Albert is investing with some friends. And then we're going to look at when the investment makes money and does well, what the Waterfall Framework does for everyone. And then we're also going to explore when the investments don't go according to plan because, you know, some investments lose money. What happens then? How does the Waterfall Framework come in when things don't happen according to plan? Let's get started.

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