What questions should I ask before I write a check for a private real estate investment?
Start with five: What exactly am I investing in? How is my money being used? How is the potential return generated? What could cause me to lose money? When and how do I get my capital back? Then ask yourself one more: if this investment takes longer than expected or loses money, can I financially and emotionally handle that outcome?
This is the page to screenshot or photograph. It is the checklist at the back of the guide, and the chapter the book is built around.
The ten questions
- What exactly am I investing in? Debt or equity? A note, an LLC interest, a fund? Which entity, which property?
- Who controls my money? Who signs on the account, and what rules govern how it is released?
- What property or assets are involved? Address, condition, purchase price, plan.
- How is the potential return generated? Interest, preferred return, profit split, cash flow, exit proceeds? What has to go right?
- What are the fees? To the operator, to affiliates, at what points. From which pot.
- What is the exit strategy? Sale, refinance, hold? Timeline? What is plan B?
- What could go wrong? Ask the operator to name three things, and what they would do about each.
- How long could my money be tied up? Term, extensions, redemption rights.
- What happens in a default or shortfall? Who is paid first, and what is the process?
- Who are the people operating this? Experience, track record, references, conflicts, how they behaved when a past project struggled.
Then build your own plan
Before the operator’s answers matter, know yours:
- How much capital could I reasonably allocate to illiquid private investments in total?
- How much liquidity do I need to keep outside them?
- What is my honest risk tolerance: how would I feel if this went to zero?
- What role should real estate play next to my other assets?
- Do I understand the tax treatment (interest income, K-1s, depreciation, state filings)?
- Who are my attorney, CPA and financial adviser, and have they seen this?
- Am I eligible for the offering I am considering?
- Do I actually understand this, or am I relying on liking the person?
Never invest in something simply because someone you trust recommends it. Understand it yourself.
That last line is the whole philosophy of the DanCan Private Investor Network. If what you read here makes sense to you, start a conversation. If it doesn’t yet, keep reading; the questions are free.