What two types of capital are included in the capital stack?

The capital stack refers to the various layers of capital that a real estate investment or project can utilize to fund its operations and development. The two primary types of capital that are typically included are equity and debt.

Equity represents the ownership interest in the property or investment, often provided by investors in exchange for a share of the profits. This capital is usually considered riskier because equity holders get paid after debt holders in the event of a liquidation.

Debt, on the other hand, refers to borrowed funds that must be repaid over time, usually with interest. This type of capital is considered less risky than equity because debt holders have a legal claim to repayment, often before equity holders receive any distribution of profits.

This structure is crucial in real estate finance, as it defines the hierarchy of claims and risks associated with the investment. Understanding the capital stack helps investors assess how returns are allocated and the potential risks involved with different types of financing.

The other options do not adequately capture the fundamental components of the capital stack. For example, while assets are important in a business context, they do not represent a type of capital. Similarly, bonds are a specific form of debt and not a separate category of capital. Lastly, cash flow is a result of operations