Investing in a waterfall equity structure is an opportunity that real estate investors should take seriously. It gives you the chance to earn a good return on your investment, and you don’t have to worry about other investors coming in, impacting your success. Nearly 99% of all investments are made with cash flow, meaning the only way to get significant returns is by investing in scalable assets.
Thinking of making a big investment in real estate? Well, then, the waterfall equity structure is the best strategy for you. Continue reading if you’re interested in more details about this investment model.
There are a lot of misconceptions about investing in a waterfall equity structure. A few of them are listed here:
“This is so complex; I’m not exactly sure it’s worth it!”
You shouldn’t get into something you don’t understand completely. Before you invest in a property with a waterfall equity structure, you should learn about the basics of investing in this structure. It will help make your investment more predictable (and, therefore, more profitable.
“I’m not going to work with someone I don’t know; it’s only going to be people I trust. They won’t get a deal if they don’t know how to do it right!”
That’s ok. It doesn’t hurt to try and look for people you can rely on. However, if you want your investment to be as successful as possible, you must work with someone experienced in this type of investment, whether you know them or not.
“I will just invest in cash flow properties.”
Cash flow properties are essential, but they can’t significantly impact your overall returns. Since very few real estate investors actually build wealth through cash flow investing, you’ll want to look at scalable investments where you can build up equity. This is a strategy that no one can take from you, and it’s the only way to build wealth over the long term.
“I wish we could design our own waterfall equity structure.”
Often, people think this means they can easily make a deal work for them. This isn’t true. It takes more than just trusting relationships to find a property that creates the type of equity structure you’re looking for! Before pursuing it, you need to know what you are doing and be very familiar with how it works.
“I really don’t care about these other investors. I take the cash flow deals and make it work.”
There are too many people investing in properties that have a waterfall structure. They knew about the waterfall equity structure but didn’t know how to make it work for them. They didn’t take the time to learn what they were doing and assumed it would be enough with a great deal of cash flow.
“I don’t like investors discussing with each other.”
Most real estate investors care about their deals because they want to succeed. This usually means that you’ll work together with other real estate investors who have similar goals as you do. They want to build wealth, and this is how they do it. The best deals aren’t impossible to get; you need to be willing to work with other investors who want what you want.
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“I think waterfall equity structures are only for people that don’t know where to start. It’s probably not right for me.”
One of the biggest reasons so many real estate investors struggle is that they start at the wrong end of the spectrum. Just because it seems scary and complicated doesn’t mean it’s not right for you.
Conclusion
There are a lot of misconceptions out there, and it’s essential to think carefully about what you’re getting into before investing in property with a waterfall equity structure. The opportunities are enormous, and the returns are well worth the time you’ll spend learning.
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