The words in
the documents.

Private real estate runs on vocabulary that nobody defines for you. Offering documents assume you already know what a waterfall is, what basis means, and why a preferred return is not a guarantee. This is the working definition of each term as it is actually used in a Los Angeles residential deal — not a textbook, and not a sales sheet.

Where a term deserves more than a paragraph, it links to a full guide.

Returns and performance

Internal rate of return (IRR)

The annualised rate of return on invested capital, accounting for when money moves rather than only how much. Because it is time-weighted, a project that returns capital sooner produces a higher IRR than one returning the same total later. That is also its weakness: IRR can be improved by an early refinance without a dollar more profit ever being earned, which is why it should never be read without the equity multiple beside it.

Equity multiple

Total dollars returned divided by total dollars invested. A 1.8× multiple means $1.80 came back for every $1.00 in, inclusive of the original dollar. Unlike IRR it ignores time entirely, so a 2.0× over three years and a 2.0× over ten look identical. The pair together tell you what IRR alone cannot: how much you made, and how long your money was tied up making it.

Cash-on-cash return

Annual cash distributed divided by cash invested, expressed as a percentage. It measures income during the hold rather than the outcome at exit. In ground-up development it is frequently zero for the life of the project, because there is nothing to distribute until something is sold or refinanced — which is not a warning sign, simply the nature of the strategy.

Preferred return

A stated annual rate paid to investors on their capital before the sponsor participates in profit. It defines a position in the queue, not a promise: if a project generates no cash, there is nothing to pay it from. Unpaid preferred return typically accrues rather than disappearing, and is settled at exit out of proceeds. The rate, and whether it compounds, are set by each offering's documents. How the waterfall sequences profit.

Capitalisation rate (cap rate)

Net operating income divided by purchase price — the yield a property produces if bought without debt. It is the language of income investors, which is precisely why it matters in for-sale strategies: an investor prices a small apartment building on its cap rate, while individual homebuyers price the same square footage as places to live. The gap between those two numbers is the entire thesis behind tenancy-in-common conversion.

Pro forma

The sponsor's financial model for a project — projected costs, timeline, revenue and returns. It is a set of assumptions, not a record, and every figure in it was chosen by the party asking for your money. The useful questions are what happens when the timeline slips and the exit price is lower, not whether the base case looks attractive. Why structure outlasts projections.

Who can invest

Accredited investor

An individual or entity meeting SEC thresholds on income, net worth or professional credentials, which most private offerings require for participation. Current requirements.

Rule 506(b)

An exemption permitting a private offering without public advertising. The sponsor may not generally solicit, investors self-certify their status, and a limited number of sophisticated non-accredited investors may participate. It is why many private deals reach people only through existing relationships.

Rule 506(c)

An exemption permitting a sponsor to market an offering publicly, on the condition that they take reasonable steps to verify each investor's accredited status — typically documentation from an accountant or attorney rather than a checkbox.

Sophisticated investor

An investor who, without meeting accreditation thresholds, has sufficient knowledge and experience to evaluate the merits and risks of an investment. Certain exemptions permit a limited number to participate.

Forms of ownership

Fee simple

Outright ownership of a parcel of land and what stands on it, with its own assessor's parcel number. An individual APN is what allows a buyer to obtain a conventional mortgage, which is why a fee-simple exit reaches the widest buyer pool. How SB 684 creates fee-simple lots.

Tenancy in common (TIC)

Co-ownership in which each owner holds an undivided fractional interest in the whole property, with a written agreement granting exclusive right to occupy a specific unit. The building is never legally subdivided; rights are allocated by contract. There is no right of survivorship. Full guide to tenancy in common in Los Angeles.

Condominium

A form of ownership creating legally separate units, each with its own APN, through a subdivision map. Cleaner and more liquid than a TIC — and in Los Angeles frequently unavailable, because converting existing rental buildings is heavily restricted.

Joint tenancy

Co-ownership requiring equal shares and carrying a right of survivorship: a deceased owner's interest passes automatically to the surviving joint tenants rather than through their estate. Distinct from tenancy in common, which permits unequal shares and no survivorship.

Common interest development (CID)

An umbrella term for developments combining individually owned units with shared common areas governed by an association — condominiums, planned developments, stock cooperatives.

These definitions are general educational information about private real estate investing. They are not investment, legal or tax advice, and not an offer or solicitation of any investment. Terms vary between offerings, and the governing definitions are always those in the individual offering’s own documents. See our full Risk Disclosures.