7 MIN READ
How to Vet a Real Estate Sponsor: 12 LP Questions
The sponsor is the single biggest variable in a passive real estate investment — the same property run by two different operators produces two different outcomes.
Before evaluating any deal's numbers, evaluate the person running it. These twelve questions cover the four areas that matter: track record, alignment, structure, and transparency.
Track record
Ask for full-cycle results — deals bought AND sold — not just a portfolio list.
- 1. How many deals have you taken full cycle, and what were the actual results versus projections?
- 2. Have you operated this exact strategy (asset type, market, business plan) before?
- 3. What happened to your deals in the last downturn or rate spike?
Alignment
The sponsor should win only after you do.
- 4. How much of your own money is in this deal?
- 5. What fees do you earn regardless of performance, and what do you earn only after investors are paid?
- 6. Who manages the property — a third party, or your own team?
Structure and debt
Most deals that fail, fail because of debt.
- 7. Is the loan fixed or floating? If floating, is a rate cap in place and when does it expire?
- 8. When does the loan mature, and what is the refinance plan if markets are closed then?
- 9. How many months of reserves does the deal carry?
Transparency
How a sponsor reports in good times predicts how they'll communicate in bad ones.
- 10. Can I see a sample of your regular investor reporting?
- 11. Will you share references — investors from a past deal I can call?
- 12. When a deal underperformed, when and how did you tell investors?
Frequently asked questions
What is the biggest red flag when vetting a sponsor?
Evasiveness about past underperformance — every experienced operator has had a hard deal, and refusing to discuss one signals how they'll communicate when yours hits turbulence.