Investor Encyclopedia

Capital Stack

Capital Stack: a practical Canadian real estate investor guide to definition, deal math, underwriting use, common traps, and Realist.ca implementation.

Definition

The capital stack is the order of money in a deal: senior debt, junior debt, preferred equity, common equity, and sometimes seller financing. It tells you who gets paid first and who absorbs losses first.

Formula

Total sources = senior debt + junior debt + preferred equity + common equity + seller financing. Loan-to-cost = total debt / total cost.

Example

A $5M acquisition uses $3.25M senior debt, $500k VTB, $250k preferred equity, and $1M common equity. The common equity has the highest upside but is first to take losses.

Why It Matters

capital stack changes what a disciplined buyer can pay, how much debt the asset can safely carry, and whether the return is coming from operations or fragile assumptions.

Investor Interpretation

Use it to kill bad deals quickly. If the back-of-envelope version does not survive conservative assumptions, do not spend five hours making it look alive.

Realist Tie-In

Realist.ca can make capital stack searchable as an encyclopedia entry, link it to property underwriting, and show it beside listings, saved analyses, market pages, and investor lead magnets.