You need to calmly talk to her and find out why she thinks it is a bad idea, and show her the numbers.  

Be prepared to address the issue with the tenant in a calm, considered manner.There might be an upside to this.

Main floor we added engineered planks, new kitchen including quartz waterfall island. 2 nest thermostats, new carpet upstairs and new 4 piece master bath.

If your waterfall is calculated on IRR split tiers instead of an annual return, the order is moot because "return of" and "return on" are treated the same, without any distinction, simply by definition.If you look back at the total dollars distributed after the investment is all over, it really doesn't matter much whether return OF or return ON comes first--except that if return OF is first, preferred return is less because the balance on which the preferred return is calculated is reduced with every distribution.

The key is when talking to tenants, you need to stay calm.

I've found that doing 10 min of yoga a night helps me relax and calm my mind so I can sleep better and feel refreshed in the morning.

I’ve attached an office acquisition, IRR-based waterfall model I built using the Argus AE cash flows I laid out to underwrite an active OM, as a work sample.2)Hi Ray,I'm a fellow Boston University alum (2005), reaching out to you in the effort to build up my Orange County CRE network.I've heard great things about XYZ, and I would truly appreciate the chance to learn about your experiences there and how you got to your current position as Senior Managing Director.I'm going to be in the Newport Beach area all next week, and I was wondering if you might have time for a quick coffee chat near your office?

Again, other might feel differently here.b) Skin in the game: as a conservative investor, I understand that the dirty secret of industries that the waterfall compensation is in the line with me and incentivizes sponsors to take more risk.

Maybe the fees are as low as @Brian Burke mentioned, 2, 1, 1, but don't forget to review the PPM for the splits and maybe the waterfalls, and potentially other clauses!

To calm your fears a bit, I'd say you can ask for some additional deposit funds as a condition of renewing their lease if you're concerned that their damages will eventually overrun the security deposit.