I\'m attempt one more time to explain then I must cancel. Let\'s say I am a Spon

Question

I'm attempt one more time to explain then I must cancel.

Let's say I am a Sponsor that means I put the investment together. Usually we invest in real estate. For its rental income and equity.

So when rent comes in 1st the investors get 8% preferred return. Everything left over we split it 20%Me the sponsor /and 80% the investor.

So let's say receive rent of $300.00 USD

So investors preferred return
is $8.00 USD
We will have $292 USD left over
$58.40 USD = 20% sponsor/me
$233.60 USD = 80% INVESTORS

THE SOLUTION I NEED, MUST TELL ME IF PREFFERED RETURN GOES DOWN OR UP. HOW SHOULD I ADJUST SPONSOR/INVESTOR SPLIT?

Let's say I get them 90% preferred return
What happen to sponsor/investor's split???

I know to know what to charge my investors based on my performance.

So if I KNOW our split if I give the investors 8% preferred return. But I don't know what would happen if I landed them at 10% preferred , at that point I don't know how to do sponsor/investor's split. Looking for a template that shows how much investors split would be based on preferred return to investors.

This is not calculated, just guess work, just example how things change once preferred
Return to investors change.

90% preferred return
90% sponsor split
10% investors split.

Original true calculated split I want all others to be based off.

8% PREFFERED return
20% sponsor's split
80% investors split

Do you UNDERSTAND?

Explanation / Answer

Yes I get it.

See this is how the distribution happens if preferred returns are 8% and investor's capital is $300 and sponsor capital is $100. Let's say total profits are $1000 and Split ratio is 20% sponsor/80% investors.

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First of all, from whatever profits are received, Investor is given 8% return on his initial investment of $300 which is $300 * 0.08 = $24

Next, with remaining profits ($1000-$24 = $976) investor and sponsor are given their initial capital investment on pro-rata basis if the amount is less than total initial investment ie 25% ($100/$400) will be given to sponsor and 75% ($300/$400) will be given to investor.

Next the remaining money ($976-$300-$100 = $576) which is in excess of preferred returns and total capital is split between sponsor-investor split ratio.

Sponsor gets 20% of this $576 = $115.2 and investor gets 80% of $576 = $460.8

So at 8%, Investor gets $24+$300 + $460.8 = $784.8 for $300 capital infusion while sponsor gets $100+$115.2 = $215.2 for $100 capital infusion.

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Now to answer your question if preferred return rate is increased, the profits are diverted towards investor who will take his bigger share before it reaches the sponsor.

At preferred rate of 20%, first investor will take $300* 20% = $60. Remaining amount of $1000-$60 = $940 is then used to pay off total capital after which $940 -$400 = $540 are split in 80:20 ratio where investor gets $432 and sponsor gets $108

At 20%, investor gets $60 + $300 + $432 = $792 but sponsor gets $100+$69 = $169 for same capital infusion.

Increase in preferred return rate is favourable to investor and hurts the sponsor.

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