so they can improve their DTI.Maybe a partnership with a waterfall allocation makes sense, but there must be 'substantial economic effect' for such an allocation to be respected.Why not just do a cash out refi and use the proceeds to buy 2-5 more properties?

In addition there are several water falls, lakes, etc. nearby. 

You've got GP/LP shares, splits, waterfalls, prefs, and then multiple stress tests to be done.

And there isn't yet enough information in your post to be able to answer your question.To give you background: there is more to evaluating whether a waterfall is fair or not than just the equity split. 

I bolted into the front door to see a waterfall coming down the stairs.

Many MF Syndication deal is also not in favour of Investor (eg: skin of the game/waterfall/fees etc).

This is likely a risk mitigation technique to pad their reserve fund.If GC has a preferred return, waterfall structure in place, he only gets paid AFTER the investors get paid.

She is located near by to a state park with some very nice hiking trails with water falls. 

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.

The rotten wood brought melted snow and rain water along the grooves of the wood into the house where it created a nice waterfall in the hallway of the middle floor.