Dunked on the incompetent bearded grifter enough that I can now share my thoughts on what to look for if you're investing as an LP in a real estate deal. For context, I am an LP myself in a few deals although I've never acted as a GP (I have zero interest in being responsible for other people's money). Here are my recommendations if you considering investing. 1️⃣ Realize that you are risking 100% of your investment. Even if the real estate market is flat, a bad deal, excessive leverage, poor execution, or an incompetent operator can result in a complete loss of capital. If you aren't prepared for this risk then DO NOT invest as an LP. 2️⃣ Analyze the deal independently of the memorandum or pitch deck. This takes some time but it's not difficult. Review all available reports (property condition report, environmental, appraisal, etc). Consult with a 3rd party lawyer, accountant or broker if you need assistance. Estimate what you believe the property is worth today. Build a simple 5 to 10 year pro forma using your own assumptions for rents, occupancy, expenses, capital costs and eventual sale value. The goal isn't to predict the future. The goal is to stress test the investment. Since you are risking 100% of your capital you better have a thorough understanding of your downside risk. Again, if you aren't prepared to do this, DO NOT invest as an LP. 3️⃣ Evaluate and scrutinize the operator A great operator can navigate a challenging market while a poor operator can destroy value in a strong market. Look at their track record. Ask about deals that underperformed and what mistakes they've made. Anyone can showcase their winners. The real insights often come from the deals that didn't go according to plan. 4️⃣ Understand how the GP gets paid Some compensation structures align interests and others don't. How much is being paid in acquisition fees, asset management fees, financing fees, construction management fees and disposition fees? The more money a sponsor makes regardless of performance the more closely you should examine the structure. And ask how much of their own money is going into the deal. A meaningful co-investment doesn't guarantee success, but it does ensure they feel the same pain if things don't go as planned. 5️⃣ Be skeptical of projections Nobody knows where interest rates, cap rates, rents, operating costs or capital markets will be years from now. This is an unavoidable risk but underscores the importance of doing your own projection first to then reconcile where they might be far too aggressive. 6️⃣ Understand the debt Many investors spend hours reviewing the property and only minutes reviewing the loan. Debt can make a good deal great and a bad deal catastrophic. Know the interest rate, maturity date, recourse provisions, extension options and refinancing risks. 7️⃣ Ask what has to go right Most presentations focus on upside. I want to know what assumptions must occur for the projected returns to be achieved. If everything has to go perfectly, that's not a business plan. That's a hope strategy (aka the guru's grift). 8️⃣ Ask what could go wrong Tenant bankruptcy Unexpected capital expenditures Higher vacancy Environmental issues Adjustable rate mortgage sees a dramatic increase and the operator doesn't understand how rate caps work Property taxes increase because a higher sales price than the assessed value triggers a reassessment Every deal has risks. The best operators acknowledge them openly. 9️⃣ Never invest because of FOMO "Last chance." "Almost fully subscribed." "We need commitments by Friday." Pressure is not due diligence. Good opportunities will continue to exist next month and next year. Assume there will be surprises (there will always be surprises). The question isn't whether something unexpected will happen. The question is whether the deal and the operator can withstand it. 🔟 Final thoughts Preserving capital is more important than chasing returns. Many investors spend their time asking how much they can make. Experienced investors often spend more time asking how much they can lose. The first goal is not losing money. The second goal is making money. If you sense any red flags (ie/ the sponsor repeatedly calls himself an expert and says it's easy to make a billion dollars in real estate) run. Run as fast as you can. Any other ideas or recommendations I'm missing?