People fly across borders to stare at them. Tourists pay big money to fly over them in helicopters. And a few daring souls have even built tightropes to walk across them.

Waterfalls.

Honestly, I was a bit perplexed the first time I read about one in an investment context. Then I realized almost every commercial real estate and private equity deal out there has what's known as a waterfall structure.

One of my new investors, Bill, left me a voicemail yesterday.

“Hey, uhh, Paul, I’ve got a question on my distribution. Can you call me?”

I knew what exactly what Bill wanted to discuss. If I didn’t care about Bill personally, I could have copied and pasted another email to reply to him before he asked his question. Of course, I didn’t do that. I called Bill back after lunch, and it was precisely as I had predicted.

An experienced residential real estate investor called me the other day. He was a bit new to commercial real estate and he had a question:

“I thought I heard you say that a lower cap rate means a higher price. Did I hear you right? What do you mean?”

Depreciation Schedules. IRS codes. Accounting. Paperwork. The very thought of these concepts is enough to put me to sleep at my desk. Well, they used to be.