b'8. Decide How You Will Split Money With Investorssition loans) where the first position lender prohibits subordinate debt. Creating a separate debt class of investors is one way you can use sell-er financing if an institutional lender wont allow subordinate debt on a property. It can also be used to accommodate a large investor who wants different terms than other investors. The debt class can be reserved for anyone who wants to ensure they get paid back first. To accomplish this, your company can create a separate class of investors with rights different from and superior to its other investors. You can think of this like pre-ferred versus common stock in a corporation. 21A debt investor invests in your company and gets ownership interests in exchange for its right to receive a fixed, preferred return from operations or a capital transaction before other equity investors or the management class get paid. A debt investor may be willing to accept a lower return than equity investors in order to be paid first. With a preferred return your agreement with the debt investor may allow unpaid returns to ac-crue until the asset is refinanced or sold, without losing the asset to the investor(s), making this a less risky proposition for you and other inves-tors than having promissory note investors. On the occurrence of a capital transaction the debt investors capital contributions plus any deferred returns are typically paid back first. This class generally doesnt receive a share of profits, and its position could be redeemed or bought out by the company by paying back its original capital contribution plus any preferred returns then due. Once the debt class is paid off, your agreement may allow them to be disassociated from the company, leaving the equity investors as the remaining owners of the company. Frequency of Distributions to InvestorsDuring ownership of real property, distributable cash is usually eval-uated and distributed on a quarterly basis. It is a rookie mistake to offer monthly payments to equity investors, although you might have to make monthly payments to debt investors or promissory note investors. For startup businesses, distributions may be made on occurrence of a 21 Preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders are paid, and the preferred shares usually dont carry voting rights. www.investopedia.com/terms/p/preferredstock.asp89'