Dani Lynn Robison breaks down who gets paid first in passive real estate deals. Investors get their preferred return (say, 8%) before the operator makes any profit. If the deal misses that target, the operator earns nothing, which shows whether they're actually aligned with you. Ask if the preferred return is cumulative, meaning missed payments stack up and get paid back later.
In a real estate deal, who gets paid first? Here's how it actually works. When you invest passively in real estate, there's a structure that protects you. It's called a preferred return. And here's what that means in plain terms. The person who manages the real estate deal is called the operator. And before they make a single dollar of profit, you get paid first. Let's say the deal has an 8% preferred return. That means you receive 8% on your money before the operator takes anything. And if the deal doesn't perform well enough to pay you that 8%, the operator gets nothing. That's called alignment. Their success depends on yours. When you're looking at any deal, always ask, "What's the preferred return? And is it cumulative?" Cumulative means if they miss a payment, they still owe it to you later. That one question tells you a lot about how much the operator is on your side.
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