Glossary · FINANCING

Capital Stack

The layered structure of debt and equity funding a real estate deal, from senior debt at the bottom to common equity at the top.

The capital stack describes all the capital sources in a deal and their priority in repayment and risk. From bottom (safest, paid first) to top (riskiest, paid last): senior debt (bank or institutional), mezzanine debt or seller carry (second position), preferred equity, and common equity. In a seller-financed deal, the seller note may occupy first or second position. First-position seller notes are clean. Second-position notes behind a bank loan are junior and carry more risk for the seller. Understanding the capital stack is essential when negotiating seller-carry terms and when explaining the seller's secured position.

Related Terms

Debt Service

The total annual principal and interest payments required on all loans secured by a property.

Loan-to-Value (LTV)

The ratio of loan balance to property value, expressed as a percentage. Lenders use LTV to set maxim

Mortgage

A legal instrument that pledges real property as collateral for a loan, used primarily in eastern US

Seller Financing

A transaction where the property seller provides the loan directly, eliminating the need for a tradi

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