Trending Content - Real Estate Forum
Career Resources
WSO Free Modeling Series - Now Open Through
June 30, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
8% is payment in kind / PIK. Principal balance increases by 8% p.a. (Then the next year that balance by 8% and so on) while you also clip 8% in cash interest
Accrued isn't always PIK. You can have 8% current and 8% accrue without the principal balance increasing
Accrue by definition means accrue to the principal balance. If it is accruing, the principal is growing. The above is inaccurate unless the terms are terribly worded.
^ What was said about Payment in Kind / PIK.
Imagine the complete opposite of amortisation, capital added back onto the loan instead of deducted from.
This is called negative arbitrage
Can you provide an easy example (For a real estate deal)? Thank you.
Yeah if you had a $100 loan, you’d pay $8 a year in current interest - actual cash out the door to the lender. You’d also accrue $8 of interest over that same time period, so your balance at the end of the year would be $108 and you would’ve paid out an additional $8.
Is this essentially it? 10% Pref Equity (5% current and 5% accrual) - $100,000 for 3 Years.
Current Pay:
Year 1: $5,000
Year 2: $5,000
Year 3: $5,000
Year 3 (Accrual): $15,000
Total Return ($): $30,000
In 99% of cases the above wouldn't be correct (some companies/people/regions might do calcs on what is called a 'fee simple' basis which will look like your workings) - See below for industry standard;
Year 1: $5,000 ($100,000 balance)
Year 2: $5,250 ($105,000 balance)
Year 3: $5,512.50 ($110,250 balance)
End Year 3 (Accrual): $15,762.50
Total Return ($): $31,525
You pay a 5% coupon on your current balance but your balance is also increasing by 5% pa.
Correct
Thank you - So are you actually getting paid that current, annual cash flow or does it just rack up and accumulate?
Quod doloribus provident soluta ratione impedit. Consequatur et delectus sit repellat suscipit excepturi.
Voluptate rerum repellat sapiente optio voluptatibus fugit. Ea maiores veniam amet porro laborum tenetur quos. Tenetur tempora quia suscipit sapiente voluptates et voluptate. Sint quidem voluptatibus tempora et perferendis voluptas quasi ea. Veritatis perspiciatis beatae sunt nihil dolorum dolorem. Numquam repellat corporis consequuntur sequi et qui sit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...