Real Estate Crowdfunding Deal Structures Explained

The Capital Stack

Every commercial real estate deal has a capital stack, the layered structure of debt and equity that funds the acquisition. Understanding where your investment sits in this stack determines your risk, return potential, and priority of payment.

At the bottom of the stack sits senior debt, typically a bank mortgage covering 55% to 75% of the property value. Senior lenders get paid first from property income and have first claim on the asset if the deal fails. Crowdfunding investors rarely occupy this position, as it belongs to institutional lenders.

Above senior debt sits mezzanine debt, a loan subordinate to the bank mortgage. Mezzanine debt fills the gap between the senior loan and the equity, usually 10% to 15% of the capital stack. Mezzanine lenders earn fixed interest rates, typically 8% to 14%, and get paid after the senior lender but before any equity investors.

Preferred equity occupies the layer above mezzanine debt. Preferred equity investors receive a fixed preferred return (often 6% to 10% annually) before common equity holders receive anything. If the deal performs well, preferred equity holders may also participate in upside through a profit split, though their upside is typically capped.

Common equity sits at the top of the capital stack. Common equity holders absorb losses first and get paid last, but they capture the majority of the upside when deals perform well. The sponsor typically holds a share of common equity alongside investors.

How These Structures Appear on Crowdfunding Platforms

Most crowdfunding deals offer investors either a debt position or an equity position. Debt investments are structured as notes paying fixed interest (7% to 12%) with defined maturity dates, usually 12 to 36 months. You receive regular interest payments and your principal back at maturity. These are common on platforms like Groundfloor and PeerStreet (now defunct, illustrating platform risk).

Equity investments are more common on CrowdStreet, EquityMultiple, and RealtyMogul. Within equity deals, you may see different classes. Class A investors might receive a preferred return of 8% before Class B (the sponsor) receives any promote. After the preferred return is met, profits are split, often 70/30 or 80/20 in favor of investors initially, shifting more toward the sponsor at higher return thresholds. This tiered profit-sharing structure is called a "waterfall."

Some platforms offer preferred equity as a distinct investment option. EquityMultiple, for example, has offered preferred equity positions targeting 9% to 12% annual returns with shorter hold periods than common equity. These positions trade upside potential for greater downside protection.

Choosing the Right Structure for Your Goals

Income-focused investors should lean toward debt investments or preferred equity. These structures provide predictable cash flow and shorter time commitments. A portfolio of debt investments across multiple deals can produce consistent 8% to 11% annual returns with moderate risk.

Growth-focused investors willing to accept longer hold periods (3 to 7 years) and greater uncertainty should consider common equity deals. The projected returns are higher (12% to 20%+ IRR), but actual outcomes vary widely. Some deals exceed projections while others return less than invested capital.

A balanced approach combines both. Allocating 40% to 50% of your crowdfunding capital to debt or preferred equity and 50% to 60% to common equity creates a portfolio with both current income and long-term appreciation potential. As you gain experience evaluating deals, you can adjust this balance based on market conditions and your confidence in specific opportunities.

For a complete introduction to real estate crowdfunding, see What Is Real Estate Crowdfunding?.