Why the Ultra-Wealthy Care More About Structure Than Returns
Background
Most investors chase returns...but the ultra-wealthy don’t. They’ve seen too many “20% IRR” deals implode because the foundation was weak. For them, structure beats returns. Every time. In other words, a flashy projected ROI means nothing if the deal can’t survive real-world stress. The ultra-rich know that a solid investment structure isn’t about being conservative for its own sake - it’s about protecting and compounding wealth with discipline.
The Mirage of High Projected Returns
In recent years, plenty of real estate deals promised sky-high returns on paper - 18%, 20% IRRs, even “can’t-miss” double-your-money projections. Yet from 2021-2023, hundreds of these supposedly safe deals fell apart. Why? Not because the properties were bad or tenants vanished, but because the capital stack was fragile. Many were financed with floating-rate debt and minimal reserves, banking on ultra-low interest rates that didn’t last. Few had proper interest rate caps or hedges in place. When rates spiked and expenses rose, these deals couldn’t withstand the pressure. Overly rosy assumptions (like endless rent growth or unrealistically low exit cap rates) suddenly didn’t pencil out. The result: on paper they advertised 18-20% returns, but in reality many delivered losses.
What the Ultra-Wealthy Do Differently
Elite investors approach capital the way engineers approach bridges: build for stress, not just sunshine. They would rather design an investment that survives the worst-case scenario than chase the highest number on paper. Here’s what that looks like in practice - the ultra-wealthy prefer to:
Lock in moderate, steady returns: They’d rather secure a 12-14% consistent return that can survive market cycles, instead of gambling on a speculative 20% IRR that might collapse under pressure. Capital preservation and durability come first.
Prioritize quality of debt and reserves: Fancy pro forma models mean little if the financing is shaky. Ultra-wealthy investors focus on the cost of capital and deal terms - fixed rates, reasonable leverage, ample cash reserves - over purely optimizing a theoretical IRR. A generous safety net (ample reserves, protective loan terms) matters more to them than squeezing out a couple extra points of return.
Stack multiple wealth builders: The rich don’t rely on one big bet. They structure investments to yield a blend of reliable cash flow (to spend or reinvest), equity growth (appreciation over time), and tax efficiency (using tools like depreciation to keep more of their gains). By combining steady income, growth, and tax breaks, their wealth compounds faster while legally minimizing what goes to the IRS.
This isn’t knee-jerk conservatism - it’s discipline. The ultra-wealthy know that by not over-leveraging, by planning for volatility, and by insisting on solid fundamentals, they dramatically reduce the chances of losing money. (As Blackstone’s Stephen Schwarzman famously put it, the first rule of investing is “Don’t lose money!”) In turn, that discipline lets them play offense during downturns while others are forced to retreat. Strong structure is their secret weapon.
Key point: At Ocean Ridge, we’ve seen this first-hand. Our most successful investors often get more excited about a well-structured 12% deal than a flimsy 20% one. They understand that a deal built to last will actually deliver in the long run.
Why This Matters in 2025
Here in 2025, market conditions are separating the sturdy from the shaky. We’ve got elevated interest rates and a wave of new supply hitting many real estate markets (especially multifamily). Cap rates have risen from their 2021 lows, but not by much, which means the spread between what properties yield and what debt costs is painfully tight. In plain English: the margin for error is slim. Deals with weak structures are getting punished, while resilient ones shine.
For example, many over-leveraged acquisitions from the 2021-22 boom are now upside-down – their borrowing costs jumped, revenues didn’t keep up, and there’s no cushion. Data shows multifamily cap rates climbed ~150 basis points from 2021 to 2024, which squeezed any deal that was too highly leveraged. Those that took on floating-rate debt or optimistic underwriting are scrambling (or in foreclosure), whereas deals structured conservatively - think fixed interest, moderate 60-65% loan-to-value, and long maturities - are weathering the storm. The current high-rate environment “traps” any floating debt deal that wasn’t prepared for higher rates.
On top of that, a glut of new construction is coming online in certain markets. Thousands of new units are hitting the market in the Sunbelt and beyond, increasing competition and forcing landlords to offer rent discounts or concessions. If a deal was thinly capitalized with rosy rent projections, this oversupply is a harsh reality check. Only those deals with built-in resilience - like plenty of operating reserves and conservative rent assumptions - can comfortably absorb these shocks.
That’s why the ultra-wealthy aren’t chasing headline-grabbing deals right now. Instead, they’re doubling down on operators with disciplined strategies who do the following:
Buy below replacement cost: Acquiring assets for less than it would cost to build them new. This creates an immediate value cushion and upside when new development is costly or stalled.
Underwrite at today’s rates, not yesterday’s hopes: Basing deal projections on the current interest rate environment and realistic exit cap rates, rather than assuming interest rates will magically drop or using pre-2022 cheap debt assumptions. In short, no wishful thinking - deals have to make sense at today’s higher cost of capital.
Carry strong reserves: Insisting on robust reserve funds and contingency budgets that protect investor capital if things go wrong. If a recession hits, or interest rates rise more, or occupancy dips, these deals have the liquidity to cover debt payments and hold the asset until conditions improve.
In this environment, structure is strategy. An operator who buys right, finances right, and holds extra cash in the coffers is the one the ultra-wealthy trust with their money. They know that such deals can absorb a punch and keep going. As one industry outlook put it, investors in 2025 must “maintain flexible capital stacks, stress-test assumptions, and stay disciplined” to navigate the volatility. It’s survival of the financially fittest - and the fittest deals are those built on sound structure.
The Takeaway for Sophisticated Investors
If you care about your wealth outlasting you, don’t get seduced by glossy IRR slides or the highest number on the page. Ask one question first: “How is this deal structured to survive?” A truly sophisticated investor looks past the surface and examines the foundation - the debt, the terms, the buffers, the business plan under tough scenarios. Because if the structure is solid, the returns will take care of themselves (and are more likely to actually materialize).
Remember, the ultra-wealthy stay ultra-wealthy by never sacrificing durability for a quick buck. The right structure doesn’t just protect your capital - it accelerates it. When your investments can weather market storms, you don’t lose principal and you don’t lose time. Your money keeps compounding through the cycles, tax-efficient and stress-free, instead of getting reset to zero in the next downturn. That is how legacies are built. So the next time you evaluate an opportunity, think like the 0.1% and start with the foundation. Structure beats returns, every time - and in the end, it leads to better returns.
