Advantages of Waterfall Equity Structure in Real Estate

Waterfall Equity Structure Real Estate

With the rise of technology, not only is your business more efficient, but it’s also more profitable. The need for new strategies to maintain that profitability is essential. One strategy that has been incorporated by many businesses worldwide is building the business model on a waterfall equity structure. 

In today’s economy, companies are looking for ways to grow their income while remaining profitable and sustainable to remain competitive overseas with other companies doing similar things. Thus, many entrepreneurs are turning towards a waterfall equity structure as an investment strategy and providing them with opportunities for growth and expansion within their company or industry. Many companies have already begun to adopt this strategy, and there are many reasons why it’s so popular. This article discusses more details about the benefits of it.

Minimize risk

By utilizing this equity structure, a company can minimize risk for its investors and create a fair investment based on the value of the actual business. This can be an attractive prospect for investors as it lets them know what they will receive if they choose to invest in the company. It also helps to prevent overvaluation or undervaluation of the business, thus avoiding disputes between owners and investors. As well as protecting from future valuation disputes, waterfall equity is also beneficial in selling or acquiring businesses.

Low cost of investment

As well as helping to minimize potential disputes, waterfall equity is a low-cost way for investors to get involved in a new project based on the strengths of their company or industry. For instance, some investors deposit similar amounts of money each month rather than all at once. This allows them to get started quickly and adjust as the project progresses as funds become available.

Quick growth within the business

The high cost of investment in other business models is one factor that may dissuade potential investors from getting involved with your company. With the waterfall equity structure, this is not a problem. The low cost of entry and high potential return helps attract new investors and gives them a chance to invest for future growth. It is also a good way to provide rewards for loyalty within a business, therefore encouraging continued investment in the company.

Transparency of company value

As mentioned above, waterfall equity is beneficial from the beginning stages of an investment project. This lets new owners know how much others have invested in the company and what percentage each owns. Therefore it is easier to keep an eye on profitability and make any necessary changes that investors may require.

Continuous funding as needs increase

Although waterfall equity is not unusual in business, it may also seem unusual in real estate. In many business models, the investment must be made to expand and grow the business; however, many real estate deals are completed with lump sum investments. Since real estate value often increases over the years, waterfall equity makes the growth process more efficient and provides more funds for use at any given time.

Control of company operations

Building on previous points, a company that utilizes this structure can have much more control over its future path and direction if they implement it within its organization. They can determine how much money is available for investment and how the overall company is run daily. This affords much more control for the owners, which helps to ensure that the company stays on track with goals and objectives.


As previously stated, many business models have already implemented this strategy to remain competitive and profitable within their industry or niche of the market. The waterfall equity structure has been adopted by many companies and is now a common practice used in many industries worldwide.

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