Splitting cash flows with equity investors
I am getting ready to syndicate my first deal. I am offering my handful of investors an 8% preferred return and a 60/40 split thereafter. The deal will yield a 15% annual cash on cash return and I expect to hold it for five years where the overall IRR should be upwards of 30%.
Do I distribute all of the 15% each year and take my 40% of the profits above the preferred return? Or do I just distribute the 8% preferred return and keep the excess cash flow as retained earnings which would then get distributed at the time of sale five years from now. I haven’t discussed this part with the investors yet because I’m not sure what is the most common method.
Thanks