The Capital Stack — Where You Sit and Why It Matters

Most investors spend a lot of time asking about returns before they ask about something that matters even more. Where do they actually sit in the deal? The answer to that question tells you more about your risk than any return number ever will. And for FreedomNotes investors, the answer is a good one. Let me explain why. When a real estate investment is structured, there are multiple layers of capital involved. Think of it like floors in a building. The people at the top get paid first. The people at the bottom get paid last and absorb losses first if something goes wrong. That hierarchy is called the capital stack, and where you sit in that stack determines your priority, your protection, and your risk exposure. At the bottom of the capital stack is equity. Equity investors own a share of the asset. They benefit the most when things go well because they participate in the upside, but they're also last in line when things do not. If a property loses value, equity holders feel that first. At the top of the capital stack is debt. Debt investors are lenders. They are owed a specific amount at a specific rate with a specific repayment structure. They don't own the property. They are owed by the entity that does. And lenders get paid before equity owners. That's not a preference, that's how the legal structure works. When you invest in Freedom Notes, you're not an equity investor, you're a lender. You sign a promissory note, a legal instrument documenting that Freedom Flagship LLC owes you a specific return paid on a specific schedule. Freedom Flagship then deploys that capital into real estate-related investments including senior debt positions, preferred equity, and structured positions in needs-based real estate assets. Your return comes from that contractual structure, not from hoping a property appreciates, not from waiting for an exit, from the obligation to pay you secured by the assets of the company. This is a fundamentally different risk profile from owning a share of a property, and most investors have never been taught to think about the difference. One of the most important elements of our underwriting is loan to value, or LTV. That is the ratio of how much we owe compared to what the assets are worth. Our general underwriting targets a conservative leverage range, typically below 70% LTV on individual positions, with a goal of a lower weighted average across the portfolio. That means for every dollar we are obligated to pay, we are targeting more than a dollar in asset value standing behind it. Why does that matter? Because even if a property declines in value, the lender can still be fully protected as long as the decline does not exceed that buffer. A property can lose 20 or 30% of its value, and a lender at 55 to 65% LTV may still be in a well-protected position. That's not a guarantee. Real estate can decline in extreme scenarios, but the structure is designed with that cushion intentionally. We don't maximize leverage. We use conservative debt levels as a protection tool, not as a way to amplify returns. There's one more piece of this worth understanding. The borrower in your FreedomNotes arrangement is Freedom Flagship LLC, the company, not an individual property. That means the collateral behind your note includes not just one asset, but the company's interests across its portfolio of real estate investments, cash, and other assets. You're not exposed to a single property. You're backed by the full scope of what that company holds. That diversification at the company level is part of the structural protection built into how FreedomNotes is designed. Most retail investors own stocks. Stocks are equity. When the company does well, you do well. When it does not, you absorb the loss. Most retail real estate investors own properties directly. Properties are equity. When values rise, you benefit. When they fall, you take the hit. FreedomNotes puts you in a different position. You are owed. Being owed, backed by real assets, with conservative leverage and a well-structured collateral arrangement, is a different place to be. It's not without risk. No investment is without risk. But the structure is built to protect you first. And I think that's the right way to build an investment. In our next video, we pull back the curtain on how we actually find and select the assets that go into this portfolio, the sourcing process, the underwriting criteria, and the discipline that has shaped our track record over 18 years. If you wanna understand the full structure behind your investment, go to chatwithfreedom.com and ask us to walk you through it. We're happy to do that. I hope this was helpful, and I hope we have the opportunity to work together.