@Rachael Moore I'd start with the sponsor before the property: their track record, experience with the asset class, realized returns, leverage discipline, and how much capital they are investing alongside you. Then stress-test the deal's assumptions鈥攔ent growth, vacancy, operating expenses, exit cap rate, refinance terms, and downside scenarios鈥攔ather than relying on the projected IRR alone. The fee structure, distribution waterfall, debt terms, reporting, and exit limitations matter just as much as the headline return. A strong opportunity should still make sense under conservative assumptions and fit your liquidity needs, tax position, and overall portfolio; when the structure is complex, having the legal, tax, and financial details independently reviewed can prevent expensive surprises.
Hi @Rachael Moore, I start with the operator, their track record, deals that went sideways, and how they communicated when things got tough. Then I review the debt terms and stress-test rent growth and exit assumptions. Does it still work if things don鈥檛 go as planned? In our co-investing club, reviewing deals from different angles often exposes assumptions one person might miss. Below are some questions to ask, just a basic guidline:
The operator
1. What similar deals have you completed, and how did actual investor returns compare with your projections?
2. Tell us about a deal that went sideways. What happened, how did you communicate, and can we speak with investors from that deal?
3. How much of your own cash are you investing, separate from fees or money raised from others?
The property and assumptions
4. Why is this property an opportunity, and what local rent, occupancy, and sales comparisons support the business plan?
5. What assumptions are you making about rent growth, expenses, renovation costs, and the sale price?
6. What happens if rents stay flat, costs rise, or the sale takes longer? What occupancy covers all expenses and debt payments?
The debt and downside
7. What are the loan amount, interest rate, maturity date, and extension terms? Is the rate fixed or floating?
8. If refinancing is expensive or unavailable, what is the backup plan? How much cash is held in reserve?
9. Could investors be asked for more money, and what happens if someone cannot contribute?
The terms and investor experience
10. What fees do you collect, how are profits split, and where are those terms spelled out in the offering documents?
11. When are distributions expected, what funds them, and how often will we receive financial reports and updates?
12. How long could our money be tied up, what exit rights do we have, and which decisions require investor approval?
The question to end with: What has to go right for this deal to work, and what happens if it does not?
Your investor club. Is this a club I might pitch deals to? I鈥檓 going through a commercial real estate course now. They鈥檙e teaching creative financing for multi family properties
@Rachael Moore I'd start with the sponsor before the property: their track record, experience with the asset class, realized returns, leverage discipline, and how much capital they are investing alongside you. Then stress-test the deal's assumptions鈥攔ent growth, vacancy, operating expenses, exit cap rate, refinance terms, and downside scenarios鈥攔ather than relying on the projected IRR alone. The fee structure, distribution waterfall, debt terms, reporting, and exit limitations matter just as much as the headline return. A strong opportunity should still make sense under conservative assumptions and fit your liquidity needs, tax position, and overall portfolio; when the structure is complex, having the legal, tax, and financial details independently reviewed can prevent expensive surprises.
@Rachael Moore One thing people skip in commercial due diligence is insurance. After a fire at one of my commercial properties, my carrier dropped me and I needed a builder's risk policy fast. Before you commit, get a real insurance quote on the property and ask the sponsor who carries their coverage and whether they've ever been non-renewed. It says a lot about how the deal is run. What type of asset are you looking at?
Rachael, Divin's sponsor-first checklist is the right starting point, and G. Brian's sideways-deal question is where most spreadsheets go quiet. The headline IRR is not the underwriting. The structure is.
Run the math on a typical 65% LTV deal: a 6.5% fixed-rate loan with 30-year amortization has an annual debt constant near 7.6%, so debt service eats about 4.9% of property value. If stabilized NOI is a 6.0% yield, the property throws roughly 110 bps of cash flow before sponsor fees. An acquisition fee of 1% to 2% plus asset management of 1% to 1.5% creates 150 to 250 bps of annual drag. That can consume the entire leverage spread in year one.
Then compare waterfalls. An American deal-by-deal promote pays the sponsor early on winners. Without a strict LP clawback, later losses can sit with LPs while prior promote stays earned. A European whole-of-fund waterfall with a true-up and IRR hurdle aligns the sponsor with net LP outcomes. I rebuild both in the REITwave screening and valuation models, netting fees and debt constant before comparing the resulting LP IRR to a liquid REIT's implied cap rate and cost of equity. A private deal needs a clear illiquidity premium after all drag, not just a gross 15% target. If a liquid REIT trades at a 6% implied cap and an 8.5% cost of equity, a private LP net IRR in the low double digits is not automatically compelling. The spread must compensate for lockup, concentration, and sponsor risk.
Which single assumption has most often flipped your go/no-go decision: exit cap rate, refinance debt constant, or the waterfall's clawback mechanics?
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