Explain Carry in simple terms

You’re kind of halfway there with your example.

Your math is a bit hard to follow - but the idea is:

• Isolate the equity in / equity out to get a cause flow stream and IRR (even if it’s a simple as “buy now, sell in 5 years”)

• Your LP partner has a “preferred return” which they need to hit before you are “in the money” on your carry so to speak. Let’s say it’s 8% IRR preferred return and your promote/carry is 20% above that 8% IRR, and Let’s say your deal delivers a 10% IRR.

• Take the cash profits associated with the 8% preferred and exclude that. Then, take 20% of the profits in that 2% range between 8 and 10 and that’s your carry. Usually it’s paid out at the end of investment life because you need to return all initial

capital first before the IRR is positive.

Look up “fund / LP waterfall models” and it’ll lay it out for you