# Equity, Debt & the Capital Stack
The **capital stack** is the layered set of money funding a project, from lowest risk/return at the bottom to highest at the top.
## Layers (bottom to top)
1. **Senior debt** — the construction/permanent loan. First to be paid, lowest return, secured by the property.
2. **Mezzanine debt / preferred equity** — fills the gap between senior debt and common equity; higher cost.
3. **Common equity** — the developer and investors. **Last to be paid, first to lose** — but earns the upside.
## Why it matters
- More **debt (leverage)** boosts returns but increases risk.
- **Equity** is the most expensive money but absorbs risk and earns the profit.
- Lenders cap leverage (via LTC/LTV and **debt service coverage**), so you must fill the rest with equity.
## For a newer developer
Raising equity is often the hardest part. Common sources: your own cash, partners, friends-and-family, and eventually institutional equity once you have a track record — another reason a strong first project (or JV) matters.
**Takeaway:** More leverage lifts returns and risk; a strong first project earns you cheaper equity.
> *Educational content — not legal, engineering, or financial advice. Requirements vary by jurisdiction; always confirm with the local authority and your professional team.*
