How a private real estate fund is structured, from top to bottom

Two roles, one deal

Every private real estate fund splits participants into two groups.

The General Partner (GP) runs the fund. The GP sources deals, makes acquisition decisions, manages assets, and handles reporting. With authority comes liability — the GP is responsible for the fund's operations.

The Limited Partners (LPs) are the investors. They contribute capital but do not manage the fund. Their liability is generally capped at the amount they invest. That separation — passive capital on one side, active management on the other — is the structural foundation of the LP model.

How returns are sequenced

Most private funds distribute money to LPs and the GP in a defined order called a waterfall. Here are the core concepts, not as projections, but as mechanics.

Preferred return: LPs typically receive a preferred return first — a hurdle rate that investor capital must clear before the GP shares in profits. Think of it as a priority position in the distribution queue. If the fund earns less than the preferred return threshold, LPs capture what is available before the GP sees a dollar of performance compensation.

Profit split (carried interest): Once LPs have received their preferred return, remaining profits are split between LPs and the GP according to a pre-set ratio. The GP's share is called carried interest, or simply the carry. This is how fund managers align their financial incentive with investor outcomes — the GP earns more when investors do well.

These percentages and thresholds are not negotiated informally. They are written into the governing documents before a single dollar is raised.

The PPM: where the rules live

The Private Placement Memorandum (PPM) is the controlling legal document for a private fund offering. It is not marketing material. It is a disclosure document.

A PPM typically covers:

• The fund's investment strategy and target asset types
• The GP's background and track record disclosure
• The full economic terms: preferred return rates, profit splits, management fees, and fund expenses
• Risk factors — a frank enumeration of what can go wrong
• The subscription process and investor eligibility requirements
• The operating agreement or limited partnership agreement that governs member rights

Under Regulation D, Rule 506(c) — the exemption that allows general solicitation to accredited investors — sponsors are required to take reasonable steps to verify accredited status. The PPM and accompanying subscription documents initiate that process.

Read the PPM carefully. Every material term is in there. If a term matters to you, the PPM is where you verify it.

Why money moves through a controlled chain

In a properly structured fund, investor capital follows a specific path. It does not go directly to the GP's operating account.

Here is how that chain typically works:

• Investor capital moves by wire to a bank account held in the fund entity's name, not the GP personally
• During a transaction, funds are held in escrow — a neutral third-party account that releases money only when defined conditions are met
• A fund administrator — an independent third-party firm — maintains investor records, calculates distributions, and prepares capital account statements

This separation of custody from management is a fundamental investor protection. The GP directs how money is deployed, but does not hold it unilaterally. The fund administrator reconciles the books independently.

When evaluating any private fund, ask three questions: Where does my capital sit before it is deployed? Who holds the escrow? Who is the independent administrator? Clear answers to those three questions tell you a great deal about how the fund is run.

Realtors Fund and this model

Realtors Fund is structured on these same principles — GP and LP roles, a defined waterfall, a PPM that governs all terms, and capital that moves through banks, escrow, and an independent administrator. The co-invest model, where realtors invest alongside the deals they source, operates within this same legal and operational framework.

Understanding the structure before you review any offering is not just good practice. It is the baseline.

The takeaway

A fund's structure is its operating system — before you evaluate any deal, understand the GP/LP split, read the waterfall in the PPM, and confirm that capital flows through independent custodians, not around them.