The "capital stack" is just the layers of money funding a deal, stacked by who gets paid first and who takes the most risk. Understanding it tells you where you stand if things go well — and if they don't.
From safest to riskiest
Senior debt — the mortgage. First to be paid, lowest risk, lowest return. Secured by the property.
Mezzanine debt — a riskier loan that sits behind the senior debt; higher interest.
Preferred equity — gets paid before common equity, often at a set rate, but after the debt.
Common equity — the owner's stake. Last to be paid, highest risk — and the biggest upside if the deal performs.
The trade-off in one line. The higher you sit in the stack, the safer you are and the less you make; the lower you sit, the more you risk and the more you can earn. Knowing your layer is knowing your risk.
Not advice. This is general educational and operational information — not legal, accounting, tax, or investment advice. George Howell Ward is not a CPA or registered investment adviser and provides no IRS Circular 230 services. For decisions, consult a licensed professional in your jurisdiction.