Distribution notice template for real estate

What a distribution notice does

A distribution notice tells each investor what they are being paid, why, and how the amount was worked out. It goes out with every distribution, one notice per investing entity, and it is the record the investor and their accountant reconcile against the deposit and, later, against the Schedule K-1.

A good notice answers the questions investors otherwise email about: how much the whole deal paid, what share is mine, which part is my own capital coming back, which part is the preferred return, and when the money arrives. It also updates the balances the next distribution depends on.

This template is a starting point, not legal or tax advice. Your operating agreement, offering documents, counsel and CPA decide what your investors must receive.

The fields an LP needs

Whatever your format, include these:

• The deal or fund, the class and the investing entity, so a person with several positions knows which one was paid.
• The period the distribution covers and the source of the cash: operating cash flow, refinance proceeds or sale proceeds. Agreements often route these through different waterfalls.
• The gross distribution to all investors and to the investor’s class, so the investor can check that their share is pro rata.
• The investor’s ownership percentage of the class or company, as the agreement defines it.
• The investor’s amount, split into preferred return, return of capital and profit share above the pref. The split changes the balances the next distribution is measured against.
• Withholding, if any, and the net amount paid.
• Balances after the distribution: capital contributed, capital returned, unreturned capital, unpaid accrued pref and total distributions to date.
• Payment date and method, with the last digits of the account and a warning that payment details never change by email.
• A tax note: waterfall labels do not decide tax treatment; the K-1 reports the investor’s share of income.

• Return of capital
• Preferred return
• Schedule K-1

Distribution notice template

Copy the template and fill in the brackets from your waterfall and your ledger. Delete lines that do not apply, such as withholding, rather than leaving them blank.

[Deal or fund legal name]
Distribution Notice No. [__] for [period, e.g. Q3 2026 (July 1 to September 30, 2026)]
Date of notice: [date]

To: [investor legal name], investing through [investing entity], investor ID [__]
Class: [class name]. Your ownership: [__]% of [the class / the company].

Distribution summary
- Source of cash: [operating cash flow for the period / refinance proceeds / sale proceeds]
- Gross distribution to all investors: $[__]
- Of which to your class: $[__]

Your distribution
- Preferred return: $[__] (for [period], at [__]% [simple / compounding] on unreturned capital)
- Return of capital: $[__]
- Profit share above the preferred return: $[__]
- Total before withholding: $[__]
- Withholding: $[__] [state or federal, if any]
- Net amount paid to you: $[__]

Your balances after this distribution
- Capital contributed: $[__]
- Capital returned to date: $[__]
- Unreturned capital: $[__]
- Accrued preferred return still unpaid: $[__]
- Total distributions since inception: $[__]

Payment
- Payment date: [date]
- Method: [ACH / wire / check] to the account on file ending [____]
- We never change payment details by email. If you did not expect this payment, or your bank details have changed, call [name] at a phone number you already have on file.

Tax note
The labels above follow the waterfall in the [operating / limited partnership] agreement. They do not decide how this distribution is taxed. Your share of the partnership’s income, gain, loss and deductions for [year] will be reported on your Schedule K-1 (Form 1065). This notice is not tax advice; ask your tax adviser.

Questions: [name, title, email, phone]
Signed: [manager or GP entity], by [authorised signatory], [title]

A worked example

A fictional deal has one investor class with $10,000,000 of contributed capital and an 8% simple, cumulative preferred return on unreturned capital, paid through the last quarter. The sponsor has no capital in the class. The agreement says operating cash pays the current pref first and then splits 70% to investors and 30% to the sponsor; refinance proceeds return capital first.

In the third quarter the deal distributes $350,000 of operating cash and $1,000,000 of refinance proceeds. The pref for the quarter is 8% × $10,000,000 × 3/12 = $200,000. The other $150,000 of operating cash splits $105,000 to investors and $45,000 to the sponsor. The $1,000,000 of refinance proceeds returns capital.

Total distribution to the investor class: $1,305,000 ($200,000 + $105,000 + $1,000,000). One investor contributed $250,000 and has an ownership of 2.5% of the class, so the distribution to this investor is 2.5% × $1,305,000 = $32,625: $5,000 of preferred return, $25,000 of return of capital and $2,625 of profit split.

Why the split between capital, pref and profit matters

In the example, the investor’s unreturned capital falls from $250,000 to $225,000, so next quarter’s pref is 8% × $225,000 × 3/12 = $4,500 instead of $5,000. An investor who sees only a total of $32,625 cannot tell that, and will ask why the next payment is smaller.

The split also matters for performance measures. Returned capital counts in the equity multiple and the IRR but is not yield, so it should not raise a cash-on-cash figure. And it matters at exit: the sponsor’s share of sale profits usually waits until investors have their capital back and their pref paid.

It does not decide tax. How a distribution is taxed depends on the partner’s basis and the partnership’s income allocations, reported on the K-1, not on the waterfall label.

• Waterfall hurdle types

Before you send it

Check each distribution file before money moves:

• The distributable cash figure ties to the books for the period, and the source of cash matches the waterfall you ran.
• Investor amounts add up to the class total, and class totals add up to the gross distribution.
• Balances after the distribution match the capital-account ledger.
• A second person reviewed the waterfall and the payment file.
• Any change to an investor’s bank details was confirmed by phone, using a number on file, before the payment.
• The notice and the payment carry the same date and amount.

• Investor update template
• Capital call notice template