This is not legal, tax, or financial advice. Joint venture structures, splits, and financing terms depend on the specific facts of your deal. Use this page to learn the vocabulary and the tradeoffs, then engage a BC real estate lawyer and accountant to structure or review your agreement.
Deal Structures | Waterfalls
Profit Waterfalls, Preferred Returns, and Promotes
A waterfall is the order in which money flows out of a JV at sale or refinance. The equity split percentage matters less than the waterfall — because the waterfall decides who gets paid first, who gets paid most, and who has to wait.
The Standard Four-Tier Waterfall
Return of Capital
Trigger: First distributions until each partner has received back contributed capital
Split: 100% pro-rata to capital contributors
Protects capital before anyone takes profit
Preferred Return
Trigger: After return of capital, until capital has earned a stated IRR (commonly 8%)
Split: 100% pro-rata to capital contributors
Pays capital a risk-adjusted baseline return
Catch-Up
Trigger: After pref is paid, sponsor 'catches up' on promote
Split: Commonly 50/50 or 100% to sponsor until promote is current
Lets the sponsor / builder reach their share of pref-level profits
Promote / Carry
Trigger: All remaining profit above pref + catch-up
Split: Commonly 70/30 or 80/20 (capital / sponsor)
Aligns the sponsor with upside; the harder the deal, the bigger the promote
Worked Example: $1.2M Profit on a Vancouver 6-Plex
Assume a Vancouver 6-plex JV with $2.0M land, $0.8M capital partner cash, $0.3M sponsor cash, $3.3M senior debt, and $1.2M of profit at sale 24 months later.
Numbers are illustrative. Real waterfalls also have to handle GST, holdbacks, lender fees, and final reconciliation. This is the shape, not a substitute for a tax-advised model.
Best For
- ✓ First-time JV partners trying to model their actual take-home
- ✓ Sponsors testing whether their proposed waterfall is competitive
- ✓ Capital partners pressure-testing what they would actually receive
Usually Fails When
- ✕ You compare equity splits without comparing waterfalls
- ✕ You assume the sponsor's spreadsheet is right without re-modeling
- ✕ The waterfall has no return-of-capital tier
What To Verify Before Spending Money
- → Every tier has a clear trigger, a clear split, and a clear endpoint
- → Pref accrues even if no distributions happen during construction
- → Catch-up percentage is reasonable for the deal size
Official Sources Referenced
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