I put a pref deal on my list without knowing it was a pref deal

Been building a list for about eight months. Mostly small multifamily, a couple of mixed use things I probably can't afford. One of them came to me through a guy who does financing referrals and the pitch was a 24 unit property where the current owner needed a partner for the refinance.

I thought partner meant partner. I show up with money, I own part of the building, we split it.

So I asked what percentage I'd get and the guy said it's not really a percentage, it's a preferred return, 12 percent, and then the accrued piece if there's a capital event. I said okay so I'm a lender. He said no, you're an equity member with priority. I said which one is it and he laughed and said both, that's the point.

Here's what I actually learned that afternoon, in the order I learned it. The existing mortgage is from 2019 and cheap. The new mortgage they can get is more expensive and smaller. That difference is why anybody wants my money at all. I'd be paid before the owner takes any profit and after the bank takes everything it's owed. I don't get a lien on the building, I get a piece of the company plus a contract saying I go first.

I passed, because 12 percent on money I can't touch for three years is not what I've been saving for. But I didn't understand the shape of the deal until I asked the dumb question twice.