Smart Questions Every Passive Investor Should Ask

As a passive investor, the quality of your decisions often comes down to the quality of your questions. These questions help you understand not only the deal, but the people behind it and the principles guiding the process.

Questions About the Sponsor or Operator

• How many deals have you completed, and what were the outcomes
• What is your personal investment in this deal
• What lessons have you learned from deals that did not perform as expected
• How do you communicate with investors, and how often
• What is your team’s experience navigating market downturns

Questions About the Market

Why did you choose this particular market
What are the main economic drivers in the area
What assumptions are you using for rent growth and occupancy, and how conservative are they

Questions About the Deal Itself

What is the business plan, such as buy and hold, value add, or development
What are the projected cash flow figures and the total return expectations
What is the exit strategy, and what factors could affect that timeline

Questions About the Financials

Can I review the complete pro forma rather than summary highlights
How do you calculate projected returns, including IRR, equity multiple, and cash on cash
What fees are associated with the deal, such as acquisition, asset management, or disposition
What are the financing terms and the loan to value ratio

Questions About Risk and Protection

What are the key risks, and how are they being mitigated
What happens if the market slows or construction is delayed
Is this a 506b or 506c offering, and what does that mean for me
What happens to my investment if something unforeseen happens to the sponsor

A Final Alignment Question

If I did not have access to a spreadsheet, would I still feel confident partnering with you
Numbers matter, but trust and alignment matter just as much.

If you would like help walking through these questions or understanding how they apply to your investment goals

Disclaimer

This content is for educational and informational purposes only and does not constitute investment, legal, tax, or financial advice. Real estate investing involves risk, including the potential loss of principal. Outcomes are not guaranteed and depend on market conditions, property performance, and economic factors. Past performance is not indicative of future results. Readers should conduct their own due diligence and consult qualified professionals before making investment decisions.