b'How to Legally Raise Private Moneyof the distributable cash to investors until they achieve a specified return on their investment or hurdle rate, before the management class takes any of the distributable cash for itself. Deficiencies in investors preferred re-turns from prior years may carry forward if cumulative. They can be made up from subsequent operations or on refinance or sale of the companys assets.If you are offering apreferredreturntoinvestors, youhaveseveral choices about what to do with any remaining cash: 1.Take an equivalent (or less) distribution for the management class known as a catchup distribution, which may be cumulative or non-cumulative. 2.Split the remainder with investors according to their respective percentage interests in the company.3.Let the management class keep the rest. Your selections may be different on different phases of your syndicate. For instance, you will likely have a different waterfall for the period of company operations than you do for a liquidating event such as refinance or sale of the asset. Debt InvestorsPaying Fixed Returns versus Sharing EquityA different strategy is to offer a certain class of investors a fixed return on the amount of their investment, while your company and/or a separate class of equity investors keep the rest. For example, a large investor or seller might take a position as a debt investor. The debt investor position may be either preferred, or their posi-tion can be secured 20by a promissory note, with a promise to pay periodic interest and/or principal payments and a lien against the real estate. This type of investing can take the place of mezzanine debt (second po-20 Secured debt is debt backed or secured by collateral to reduce the risk associ-ated with lending, such as a mortgage or trust deed recorded in the chain of title for the property. If the borrower defaults on repayment, the lender forecloses and ob-tains title to the real estate, sells it and uses the proceeds to pay back the debt. The assets backing a debt are security for the loan, making the loan a secured loan and ensuring that the lender has a means to be made whole if the borrower defaults and fails to pay as agreed. Unsecured debt relies only on the personal guarantee of the borrower to repay the debt and is considered a riskier investment than secured debt. http://www.investopedia.com/terms/s/secureddebt.asp#ixzz4dNwxSCF388'