See how a deal splits between LP and GP — return of capital, preferred return, GP catch-up, then promote by LP IRR hurdle.
Model how a single exit distribution splits between LP and GP through a standard promote waterfall — return of capital, preferred return, GP catch-up, then tiered promote by LP IRR. Edit any field to run your own structure.
Total distributed = all cash returned to the equity over the deal (return of capital + profit), distributed once at exit.
Promote tiers — LP / GP split, up to each LP-IRR hurdle
Tier 1% LP
up to% LP IRR
Tier 2% LP
up to% LP IRR
Tier 3% LP
above the Tier-2 hurdle
Limited Partner (LP)
—LP IRR
— equity multiple · —
General Partner (GP)
—GP IRR
— EM · promote —
Enter the equity, splits, and total distributed to see how the waterfall allocates between LP and GP.
Tier
To LP
To GP
The waterfall convention this uses
This is a European (whole-deal) waterfall with a single distribution at exit, the LP-friendly default. Cash is allocated in order: (1) return of capital pro-rata to LP and GP contributions; (2) preferred return, accruing annually-compounded at the pref rate on contributed capital, pro-rata to LP and GP co-invest; (3) 100% GP catch-up (when enabled) until the GP has earned the Tier-1 promote share of all profit distributed above return of capital; (4) promote tiers, each splitting the remainder until the LP's IRR reaches that tier's hurdle, then the next tier's split applies. LP IRR and equity multiple are computed on a Year-0 contribution and a single Year-N distribution. A distribution below total equity returns capital pro-rata only (no pref, no promote) and is shown honestly as a loss. The full UpsideIQ underwrite models the waterfall against real multi-year cash flows.
Pre-filled with a worked example — edit any field to run your own deal.
Built by LFO Capital's institutional CRE underwriting team · computed, not guessed — deterministic math, not an AI estimate · how we calculate →
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What an equity waterfall does
A real-estate equity waterfall is the agreed order in which a deal's cash is paid out to the people who funded it. It exists because the limited partners (LPs) who put up most of the capital and the general partner (GP) who sources and runs the deal are compensated differently: the LP wants its money back plus a fair return before anyone gets rich, and the GP earns an outsized share — the promote, or carried interest — only after the LP clears that bar. The waterfall is the rulebook that turns one pile of exit cash into two very different outcomes, and the order of the tiers is where most of the disagreement (and most of the value) lives.
The four tiers
This calculator models the standard four-stage promote waterfall, in order:
Return of capital — every dollar of contributed equity is paid back first, pro-rata to what each party put in.
Preferred return — the LP (and the GP on its co-invest) earns a preferred return, accruing on contributed capital before any promote is paid. An 8% pref is the most common starting point.
GP catch-up — once the LP has its pref, the GP receives 100% of the next dollars until the GP has earned its promote share of the profit distributed so far, so the split “catches up” to the headline promote.
Promote (carried interest) — everything above the pref is split, with the GP's share stepping up at higher return hurdles (e.g. 80/20, then 70/30, then 60/40 as the LP's IRR clears 12% and 15%).
Preferred return and the GP catch-up
The preferred return is not guaranteed money — it's a priority. The LP gets paid its pref before the GP earns a promote, but if the deal underperforms, an unpaid pref simply isn't paid. How the pref accrues matters: this model compounds it annually on contributed capital. The GP catch-up is the most misunderstood tier. After the LP receives its pref, a 100% catch-up sends the next distributions entirely to the GP until the GP has earned its Tier-1 promote share (say 20%) of all the profit paid above return of capital. The effect is that, by the end of the catch-up, the GP has 20% and the LP has 80% of the profit-over-capital — the headline split, “caught up.”
Promote, carried interest, and tiered hurdles
The promote is the GP's carried interest: the share of profit it earns above its pro-rata capital, in exchange for finding and executing the deal. A tiered waterfall raises that share as the LP does better — the GP might take 20% of profits until the LP earns a 12% IRR, 30% between 12% and 15%, and 40% above 15%. This aligns incentives: the GP only reaches the richest tier by delivering the LP a strong return first. The calculator above shows, tier by tier, exactly how a given exit splits — and how much of the total profit the GP captures on a small co-invest once the promote kicks in.
The convention this calculator uses
Waterfalls vary, so the assumptions are stated plainly: this is a European (whole-deal) waterfall with a single distribution at exit — the LP-friendly default in which the GP earns its promote only after the LP's return is measured across the entire deal, not deal-by-deal. The preferred return compounds annually on contributed capital and accrues to LP and GP pro-rata to their co-invest. The GP catch-up is 100% (toggleable). Promote tiers are measured by LP IRR, with LP IRR computed on a Year-0 contribution and a single Year-N distribution. An American (deal-by-deal) waterfall, a partial catch-up, or equity-multiple hurdles would each shift the split — which is exactly why the structure, not just the headline promote, is what you negotiate.
An equity waterfall is the order in which a deal's cash is distributed to investors: first return of capital, then a preferred return to the LP, then a GP catch-up, then a promote split of the remaining profit — with the GP's share often rising at higher return hurdles. It governs how one pool of exit cash is divided between the LP and the GP.
What is a preferred return?
The preferred return (or "pref") is the return the LP must receive before the GP earns any promote — commonly 8% per year, accruing on contributed capital. It is a priority of payment, not a guarantee: if the deal underperforms, an unpaid pref simply goes unpaid. It accrues either simply or compounded; this calculator compounds it annually.
What is a GP catch-up?
After the LP receives its preferred return, a GP catch-up sends 100% of the next distributions to the GP until the GP has earned its Tier-1 promote share of all profit paid above return of capital. A 100% catch-up to a 20% promote means the GP collects until it holds 20% of the profit-over-capital, "catching up" to the headline split before the tiered promote begins.
What is promote (carried interest)?
Promote, or carried interest, is the GP's share of profit above its pro-rata capital — its reward for sourcing and running the deal. A 20% promote means the GP keeps 20 cents of every profit dollar in that tier even though it may have contributed only a small fraction of the equity. Tiered waterfalls raise the promote (e.g. to 30% or 40%) as the LP's IRR clears higher hurdles.
What is the difference between a European and American waterfall?
A European (whole-deal) waterfall measures the LP's return across the entire deal before the GP earns promote — LP-friendly, and what this calculator models. An American (deal-by-deal) waterfall lets the GP earn promote on individual winners before the LP is made whole on the whole portfolio. The European structure is more conservative for the LP; the difference can materially change the split.