Most investors ask their questions after they see a deal. The better questions come first, before you ever look at a deck or a pro forma. They tell you whether the opportunity, the sponsor, and the structure are worth your time at all.
Here is a short list worth asking before you review any private real estate opportunity.
About the Sponsor
- What is the sponsor's track record on deals like this one? Ask for specific past projects, not general experience.
- How much of their own capital is in this deal? Co-investment tells you how aligned the sponsor is with your outcome.
- Who else is on the team, and what have they done before? A strong sponsor surrounds themselves with strong operators.
About the Structure
- What is the offering exemption, and who can invest? Some offerings are limited to accredited investors. Others require additional verification.
- What is the preferred return, and how is it calculated? Understand whether it compounds, and what happens if it is not met.
- What is the fee structure across the life of the deal? Acquisition fees, asset management fees, and disposition fees all affect your net return.
- What is the target hold period, and what could extend it? Real estate timelines slip. Ask what happens if this one does.
About the Risk
- What is the downside scenario, not just the projected return? Every sponsor can show you an upside case. Ask what happens if the market softens.
- What debt is on the deal, and what are the terms? Leverage amplifies both returns and risk.
- How and when will I be able to exit, and is there a secondary market? Private real estate is illiquid. Know what you are signing up for.
None of these questions guarantee a good outcome. They do make sure you are evaluating the opportunity with your eyes open, and they tend to separate sponsors who welcome scrutiny from those who avoid it.
This article is for general informational purposes only and is not investment, legal, or tax advice. It does not constitute an offer to sell or a solicitation of an offer to buy any security. Any private investment opportunity referenced by Tellico Capital Partners is offered only through appropriate offering materials and only to qualified investors where required.