Where does my investment sit in the capital stack?

The capital stack is the ordered list of funding sources that finance a real estate deal — typically senior debt, mezzanine debt, preferred equity, and common equity. Your position in that stack determines when you get paid and how much risk you carry, so it is one of the first things to check in any offering.

The four layers

From first paid to last paid:

1. Senior debt — the first mortgage or primary loan. It is repaid first in a sale or refinance.
2. Mezzanine debt — a subordinate loan that sits behind senior debt but ahead of all equity holders.
3. Preferred equity — an ownership stake with priority distribution rights over common equity, often with a stated preferred return.
4. Common equity — the ownership stake with the highest potential upside but the last claim on cash flow.

What your position means for risk

The ordering works in both directions. When a property generates income or sells, cash flows down the stack, from senior debt to common equity. When a deal underperforms, losses flow up: common equity absorbs losses first, then preferred equity, and debt holders are impaired last. Higher positions generally trade upside for protection — a preferred equity position may cap your return, while common equity typically captures the largest share of any profits above the preferred return.

How to find where you sit

Read the offering documents before you invest. For a Regulation Crowdfunding deal, the issuer’s Form C filed with the SEC describes the security being offered. Look for:

• The security type — debt, preferred equity, or common equity
• The preferred return rate, and whether unpaid returns accrue (cumulative) or are forfeited (non-cumulative)
• The liquidation preference — what your position receives in a sale before anything flows to the layers below it
• The total capital stack — how much debt sits above you and how much equity cushion sits below

No position in the stack eliminates risk. Crowdfunded real estate investments are speculative and illiquid, every layer can lose money if a deal performs badly enough, and you should never invest more than you can afford to lose.

For a deeper walk-through of preferred equity and the full stack, see Preferred Equity Real Estate: Understanding the Capital Stack. For questions about a specific Invown offering, contact support.