News & Insights

Understanding the Waterfall Investment Model: A Comprehensive Guide

The waterfall investment model is an effective method used by fund managers to distribute profits to investors in a private equity fund or real estate investment. It is a structured distribution model that allocates returns according to a predetermined hierarchy of priorities.

In this introductory guide, we will discuss the basics of the waterfall investment model and how it works.

What is the Waterfall Investment Model?

The waterfall investment model is a distribution method used in private equity and real estate investments. It is designed to allocate profits from the investment to investors based on a hierarchy of priorities.

The model is called a “waterfall” because the distribution of profits flows from one level to the next. The waterfall model is typically used in funds that are structured as limited partnerships, where the general partner manages the investment and the limited partners provide the capital.

How Does the Waterfall Investment Model Work?

The waterfall investment model is structured into several tiers, with each tier representing a different priority of payment. The tiers are typically ordered from highest to lowest priority, with the general partner receiving the first payment, followed by the limited partners.

The first tier, or “preferred return,” is paid to investors who have provided capital to the fund. This is a fixed rate of return that must be paid before any other distributions can be made.

The second tier, or “catch-up provision,” is used to compensate the general partner for any expenses incurred while managing the investment. This payment is made after the preferred return has been paid in full.

The third tier, or “carried interest,” is the profit that is distributed to the general partner for their management services. This payment is made after the catch-up provision has been paid in full.

Finally, any remaining profits are distributed to the limited partners. The amount each partner receives is based on their ownership percentage in the fund.

Advantages and Disadvantages of the Waterfall Investment Model

There are many advantages to the Waterfall investment model, and the advantages far outweigh the disadvantages. One advantage is that it aligns the interests of the general partner with those of the limited partners. The general partner receives a share of the profits only after the limited partners have received their preferred return and catch-up provision.

It is also an excellent way for an individual investor to invest in multiple opportunities that they might not otherwise have access to.

One disadvantage is the model can be inflexible, as the hierarchy of priorities is predetermined and cannot be changed or easily modified. However, if you partner with an experienced firm like Oasis, we structure our models in a mutually beneficial way so everyone benefits.

Conclusion

The waterfall investment model is an effective way of distributing profits to investors in private equity and real estate funds. It is designed to align the interests of the general partner and the limited partners, and to ensure that each party receives a fair share of the profits.

However, like with any other investment, investors should carefully consider the advantages and disadvantages of the waterfall investment model.

They should also seek the advice of a qualified financial professional, like those available at Oasis Realty Investment Group, to determine if the investment is appropriate for their individual goals and risk tolerance.

House SEC Accredited Investor Debate

As the House of Representatives debates changing the definition of an accredited investor to comply with potential changes in SEC compliance, Oasis Realty Investment Group believes that it is important to provide individuals with ample opportunities to invest with confidence. This is because investing can be a powerful tool for building wealth and achieving financial goals, and everyone should have the chance to participate in the benefits of investing, regardless of their income or net worth.

Oasis Realty Investment Group understands that one of the biggest barriers to investing is a lack of knowledge or confidence in the investment process. Many people are hesitant to invest because they don’t know where to start, or they are afraid of losing their hard-earned money. This is why Oasis Realty Investment Group offers a diverse range of secure funds that cater to investors of all incomes and net worths. By providing a variety of investment options, Oasis helps investors find the right investment for their goals and risk tolerance.

Another barrier to investing is the perception that investing is only for the wealthy. In the past, the SEC’s definition of an accredited investor has limited investment opportunities to high net worth individuals and institutions. However, Oasis Realty Investment Group believes that this should not be the case. All investors, regardless of their net worth, should have access to secure investment options.

Oasis Realty Investment Group offers a range of investment funds that are accessible to investors of all net worths, including funds that are specifically designed for lower-income investors. These funds provide the same level of security and diversification as traditional investment options but with lower minimum investment requirements.

Moreover, Oasis Realty Investment Group is committed to providing transparent and clear communication to their investors. They believe that investors have the right to know where their money is being invested and how it is being managed. Oasis provides detailed information about each of their investment options, including the investment strategy, fees, and risk management process.

In conclusion, investing can be a powerful tool for building wealth and achieving financial goals, and everyone should have the opportunity to participate in the benefits of investing. Oasis Realty Investment Group believes in providing individuals with ample opportunities to invest with confidence, regardless of their income or net worth. By offering a diverse range of secure investment options and transparent communication, Oasis Realty Investment Group enables investors to make informed investment decisions and achieve their financial goals.

What Does the Real Estate Market Look Like For 2023?

If you’re going to invest in the real estate market in 2023, what do you need to consider before investing your hard-earned money into a solid investment? You may have heard that real estate investing is now mired by difficulties. With interest rates rising, the verifiable boom of 2021 in the wake of the COVID-19 pandemic might seem to be over. However, as with all investment opportunities, your success in the real estate market depends on where you’re looking for opportunities.

It is expected that, following declines in 2022, the housing market is expected to stabilize in the coming year as economic dysfunction sorts itself out. While many jobs require people to return to the office, many others remain work from home. As such, this will allow people to move into more affordable housing areas outside of the city market. Specifically, states like Florida, Georgia, and Arizona saw positive growth over last year and are expected to continue.

Further, many Americans are relocating away from the extreme weather of the west coast. People are moving inland, thus creating an opportunity for those who own property in these regions to take advantage of this new migration of residents.

Further, despite concerns over the housing market, home prices year over year have not decreased as significantly as some have believed. In an article in Forbes, writers Robin Rothstein and Rachel Witkowski observe, “The median existing-home sales price was up 2.3% to $366,900 in December compared to a year ago, according to the National Association of Realtors (NAR).” They observe that this is the 130^th consecutive month of increasing home value.

So there are people who are interested in relocating, but with the cost of everything rising, it is also difficult for people to afford homes. People will be continuing to rent property, which will only further establish the importance of the housing rental market. Those who are renting out property long-term will potentially benefit from this new influx of renters, especially in areas where people want to move.

As always, it’s a challenge determining what real estate offerings are best suited for all parties. It’s vital, when searching for investment offerings, to understand the sort of fund you’re putting your money into. This is where Oasis is perfectly positioned to benefit you as an investor.

The Best Way to Invest in Real Estate for Passive Income

Why are some Americans choosing to rent instead of buy?

With home prices out of reach, millennials and more opt to lease.

If new construction is going up in your neighborhood, chances are it’s a residential rental community.  Because even as we slowly return to normal after the COVID crisis, housing prices have yet to return to a reasonable level for many buyers. 

Priced out of the market, these once-prospective buyers are turning to rentals. But high prices aren’t the only reason rental communities are desirable today. Renters can enjoy perks that they might not get with traditional home ownership. Perks like on-site gyms, saunas, clubhouses, and pools. 

And many two-income millennials are busy. They don’t want to spend the free time they do have on home maintenance. They desire the ease of lifestyle that some rental communities provide. With work-from-home business centers, pools, gyms, and even park-like grounds often on-site, these new renters don’t have to leave their homes for much. They can live, work and play all in one location. 

Renting in these communities is also an increasingly good option for those who work remotely.

 “It’s an attractive lifestyle for the right population,” says Ivel Turner, CEO and Founder of Oasis Realty Investment Group, and an expert on real estate investment. “For many people, renting is a perfect choice.”

This makes investing in multi-family properties a smart decision for those looking to build wealth today, says Turner. “Now is a great time for investors to take advantage of the rental boom,” he says. “Moving forward, I believe renting will be considered a valid long-term lifestyle for many populations, from Gen Z to retirees.”

Turner explains that an easy way to get started investing in multi-family rental properties is to invest with a real estate investment fund. At Oasis, Turner and his team offer accredited investors the opportunity to invest in proven, pre-vetted real estate funds and to collect passive income from these investments. 

And because these funds are chosen by real estate experts with decades of experience, investors can rest easy, knowing that they are building wealth safely and securely, Turner says.

“Whether choosing to live in or invest in rental communities,” Turner adds, “it’s clear that both are a hot market today.”

“Don’t put all your eggs in one basket.”

Why diversification is important in investing

Famed billionaire and master investor Warren Buffett has been known to advise investors to put their investment “eggs” in multiple baskets. That way, if a crisis hits one basket, the eggs only break in that one. And the rest of your eggs in the other baskets stay safely intact.

In other words, if you’ve invested all your funds in a single stock, if that stock value plummets, you’ve lost everything. But, if you’ve invested in a diverse selection of stocks, you are more likely to weather the ups and downs of the stock market. To take it even further, investing in multiple and diverse investment avenues, like stocks, cryptocurrency, real estate, and other “baskets,” gives you a better chance of recovering from any single investment’s losses and a good chance of gains from the various investments.

Most financial experts agree that diversification reduces risk by spreading investments across investment platforms, industries, and other categories.  Losses are lessened when funds are allocated in different places that react differently to economic events.

“Although it does not guarantee against loss, diversifying your investment portfolio is the best way to reach your wealth goals while minimizing risk,” says Ivel Turner, CEO and founder of Oasis Realty Investment Group, a national investment firm that focuses on real estate investment funds. 

“Any investor who focuses solely on one investment outlet is more sensitive to risk than one who diversifies their investments,” he says. In fact, Turner explains that it is smart to diversify even inside a single investment interest, like real estate. By investing in real estate funds, which invest in various and diverse real estate projects throughout the country, investors are more likely to offset losses and make gains in real estate, Turner says. 

To reiterate, the more diversified an investor’s portfolio is, the more resilient it is to risk. This is especially important for investors who nearing the end of their professional careers and looking to safely grow and preserve their wealth. And for those no longer working and fully settled into retirement, a diversified portfolio is vital to balancing risk over returns. 

While investors may have the chance to make more money when betting on bigger risks, balancing those risks out with safer investments makes for a smarter and more stable investment portfolio. 

As master investor and philanthropist Peter Lynch says, the secret to investing is that diversifying is more likely to mean that some investments will “do mediocre, some will do okay, and if one or two of ‘em go up bigtime, you produce a fabulous result.” 
For more information on how you can diversify your investment portfolio with real estate investment funds, contact Oasis today.