This is one of the more unique scenarios I have come across in relation to utilizing a joint venture waterfall for a real estate investor looking to get into a new property with 0 down cash.
It started with this client looking into this zero down seller financing strategy where a buyer purchases a portfolio of properties from a single seller, they agree on a price and essentially 'GIVE' one of the properties to the buyer free and clear. They are not really giving it, but you can get creative here and consult a professional real estate attorney. Then, the property the buyer owns free and clear is refinanced separately and that REFI proceeds amount goes towards the down payment of the original purchase, resulting in 0 down or possibly proceeds going to the buyer, but you still then need to service all the debt with the property and that can be risky depending on NOI of the target portfolio of properties.
Anyway, the client's situation was not quite as similar as the above. Instead, they were trying to buy a property and use a seller note for the remainder of the down payment. The bank didn't like that. However, the bank was completely ok if the guy went and got an LP / investor. So, this now became more of a joint venture situation where the LP would contribute 100% of the required capital (down payment) and then a structure would be set up that included a preferred return and then some split of profit thereafter.
Here is where the joint venture logic comes into play. Two different models came to mind that could help him (they ended up getting value out of both). The first is the preferred return (4), which has a pref. and then a percentage split after the pref. is paid up until the equity of the LP is fully repaid. It kind of sounds like a seller note but it isn't. This provided a good amount of flexibility, but the issue with it was that if cash was available each year that was greater than the pref. due, that cash was split between the GP/LP at a certain rate until the equity of the LP was fully repaid.
The guy wanted to take 100% of the proceeds above the pref. for each year and then be able to separately define a distribution in the future that would result in the LP getting their money back. So, the template that solved that was an older preferred return model I did maybe 4/5 years ago. That one had multiple hurdles, but you could use just one as well and make the distribution stop at any hurdle, where the cash was split at a defined rate to the GP/LP and separately the user could manually define the year equity was repaid. Since the preferred return logic didn't talk to the repayment of equity logic, it fit better for the clients' initial needs.
This was just one example of many I have had over the years with clients that need help figuring out what template can fit their real world strategy best. There is not always a ready-made template and in those cases I can always be hired to build a custom financial model.
You may be interested in my full real estate model library.
