Investors · · 3 min read
Who Gets Paid First? A Plain-English Look at How Deals Are Structured
The rendering tells you what a project could look like. The structure tells you what happens to your money if things don't go to plan.
When people get excited about a deal, they usually look at the property, the location and the projected numbers. I look at those too. But the question I always come back to is simpler and less glamorous: if this goes slower or costs more than expected, who gets paid first, and who waits?
That's what deal structure answers. You don't need to be a finance professional to understand the basics, and you shouldn't put money into anything until you do. This post is education, not an offer, and it reflects how I personally think about structure.
Debt and equity, simply
Most deals are funded with some mix of debt and equity. Debt is borrowed money. A lender provides it, expects to be repaid on agreed terms and usually has a claim on the asset if things go wrong. Equity is ownership. Equity holders share in what's left after obligations are met, which means more potential upside and more risk.
That order matters. In general, lenders are paid before owners. If a project struggles, debt is typically addressed first, and equity absorbs the shortfall.
The capital stack
People often picture the funding of a deal as a stack. Senior debt sits at the bottom, with the strongest claim. Above it there may be other layers, such as subordinate debt or preferred equity, and common equity sits at the top. The higher you are in the stack, the later you're paid and the more risk you carry. Every layer should be priced and documented with that in mind.
Questions I ask about structure
- What is the total cost, including contingencies? Land, construction, fees, carrying costs and a cushion for surprises.
- How much is borrowed, and on what terms? Rates, maturity dates and what happens if the loan comes due before the project is finished.
- Who is in front of whom? I want the payment order written clearly, not described loosely in a meeting.
- How is the sponsor paid? Fees and incentives should be disclosed and should line up with how partners are treated.
- What happens in a slow scenario? If the timeline doubles, who has to put in more money, and what happens if they can't?
- How do decisions get made? Who can sell, refinance or change the plan, and who has to agree?
Alignment matters more than projections
Projections are opinions about the future. Structure is a set of rules for what happens no matter which future shows up. I would rather be in a deal with average projections and well-aligned partners than a deal with exciting numbers where the people in charge win even when everyone else loses.
That's one reason I'm wary of anyone promising certain returns. Nothing in real estate, construction or acquisitions is certain. A serious sponsor talks about risk as openly as upside.
Paperwork is where structure lives
Everything I've described should be written in proper documents and reviewed by qualified legal, tax and financial advisers. If the structure only exists in conversation, it doesn't really exist. I've walked away from opportunities simply because the documents didn't match what was said in the room.
How this connects to my own path
My journey went from credit to cars to Royal Rentals and, over time, toward land and new construction. Each step taught me that how money is arranged matters as much as how much there is. Credit taught me how lenders think. The fleet taught me how carrying costs add up. Land and construction raised the stakes on both lessons.
Ask before you're excited
The best time to ask structure questions is before you fall in love with a project. Once you're emotionally invested, it's harder to hear the answers clearly. Ask early, ask in writing, and make sure you understand where you stand in the stack before you ever sign.