Understanding the Capital Stack as a Passive Investor

On this session of the On The Rise Podcast’s “Passive Investing Made Simple” series, host Jeremy Dyer, VP of Capital Formation at Rise48 Equity, is joined by Chad Ackerman, a longtime passive investor, educator, founder of Chad Ackerman Real Estate, and co-founder of Left Field Investors, acquired by BiggerPockets. Chad breaks down the capital stack using a simple bucket model, explaining how senior debt, preferred equity, and common equity differ in payment priority, risk, and upside. Jeremy adds how today’s market cycle is reshaping deals and how Rise48 structures its share classes. The session closes with live Q&A on distributions, 1031 exchanges, and investment types. Essential listening for any limited partner who wants to know exactly where their money sits.

1. Every investor sits in a seat.
The moment you invest, you become a layer in the capital stack. That seat decides when you get paid and what happens if the deal struggles.

2. Think of a deal as a bucket.
Cash fills from the bottom up: senior debt first, then preferred equity, then common equity. The bottom looks least important but is first in line and the safest seat.

3. Safety and upside run in opposite directions.
The safest seat is paid first but earns the least; the riskiest is paid last but can earn the most. No seat offers both first pay and the biggest upside.

4. Not every “pref” is the same.
Preferred equity is a separate layer paid ahead of common equity. A preferred return inside common equity pays LPs before the GP. Read the documents to know which one you have.

5. Common equity is high risk, high reward.
It’s paid last and absorbs losses first, but it captures nearly all of a deal’s upside. It can also carry greater tax benefits, such as bonus depreciation.

6. Capital stacks shift with the market.
In 2021, 2022, common equity swelled as deals sold at the peak. As rates rose, senior debt swelled, creating financially distressed sellers. Capital calls can even add new layers after you invest.

7. Simpler stacks are easier to evaluate.
Rise48 deals use only senior debt and common equity. Class A earns a 10% preferred return, paid first with no equity upside, while Classes B and C sit on equal footing with a greater profit split.

8. Find the waterfall before you commit.
Every offering states your seat and class. The waterfall section is the seating chart of who gets paid, when, and in what order. Choose the seat that matches your goals, not the “best” one.