What is the first line when modeling a waterfall?

• A. Levered cash flow
• B. Gross potential rent
• C. Net operating income
• D. Unlevered cash flow

Answer: (A)

In a real estate cash flow waterfall, you distribute actual money to equity investors only after financing obligations are met, so the starting point is cash flow after debt service. This levered cash flow represents the cash available to equity after debt payments (and usually reserves) have been made, making it the base for the distribution waterfall. While top-line operating measures like gross potential rent and NOI describe operating performance, they are pre-financing metrics and don’t reflect the financing layer that determines how much cash equity investors actually receive. Unlevered cash flow, by contrast, is the cash flow before debt service and isn’t the amount available for equity distributions.