Real estate financing overview. The cash flow statement of a real estate investment is the key to understanding the returns to the debt and equity investors. Unlevered cash flow, which is the cash flow after all operating and expenditures have been deducted represents the cash flow to all the stakeholders. Debt financiers will key on this number to determine if the cash flows are substantial and consistent enough to service the loan. Once the deductions to service the loan have been removed, the only remaining stakeholders are the equity investors. Levered cash flows represent the residual cash flows available to the equity investors. In a typical real estate deal, the majority of the financing comes from a senior lender in the form of a term loan. This can be referred to as a commercial mortgage. It is secured by 100% of the value of the asset. To retain security, lenders will often lend only up to 60 or 70% of the value thereby ensuring themselves against a fall in value. This is sometimes referred to as a cushion. If additional debt financing is required to bridge the gap to equity available, a mezzanine loan is raised. This is subordinated debt, which is not secured by the asset, but rather by the equity investment. In the case of a sale, this loan will be repaid second after senior lenders have received their full amount. Equity investing in a real estate deal is more complex. Typically, there's a mix of common and preferred stock. The preferred stock is guaranteed a rate of return and is paid back at sale or refinancing before any capital is repaid to the equity investors. Common equity investors and sometimes even preferred investors are split between general partners or GPs who typically find the assets and arrange the financing and raise the investment funds and LPs who merely invest in those funds. GPs typically invest about five to 10% of a fund while LPs bring the remaining funds.