I pass on more than 100 deals a year.

Most of them don't get a "no" because of the building. They get a "no" because of something about the sponsor: the projections, the fees, the debt, or what turns up when I look at their books.

When you invest passively, you're handing someone else the keys. The property matters. But the sponsor (also called the general partner or GP) makes every decision after you wire the money. (For a refresher on who does what, see Key Roles in a Real Estate Syndication.)

Here's what I look at.

1. A full track record, including the bad deals

Every sponsor will show you their wins. Ask about the rest.

• How many deals have gone "full cycle"? That means bought, operated, and sold. Projections are easy. Finished deals are proof.

• How did actual returns compare to projected returns? Ask for a deal-by-deal list.

• Which deals struggled, and what did they do about it? A sponsor who says "none" either hasn't been around long or isn't being straight with you.

I trust a sponsor more when they can walk me through a deal that went sideways and what they learned.

2. How they handled 2022 and 2023

The rate spike was a real-world stress test. Ask:

• Did any of their deals have floating-rate debt?

• Did they issue capital calls? (That's when the sponsor asks investors for more money.)

• Did they pause distributions? For how long?

• Did they lose any properties to the lender?

None of these is automatically disqualifying. What I'm looking for is honesty and a clear account of what happened.

3. The debt

More deals get hurt by the loan than by the building.

• Is the rate fixed or floating? If floating, is there a rate cap, and when does it expire?

• When does the loan mature? Is that before or after the planned sale?

• How much leverage? Higher leverage boosts projected returns and shrinks the margin for error.

I lean strongly toward conservative leverage and fixed-rate debt. I'll give up some upside for a deal that can survive a bad few years.

4. Projections that make sense

Read the investment summary like a skeptic. I've walked away from many deals because the projections were too optimistic.

The two assumptions I check first:

• Exit cap rate. If they're buying at a 7% cap rate and assuming they'll sell at 5.5%, they're betting on the market bailing them out. I'd rather see an exit cap rate at or above today's market.

• Rent growth. Are they assuming rents rise faster than they have historically in that market? By how much?

If you change those two numbers to something more conservative, does the deal still work? A good deal should.

5. Fees and alignment

Fees are normal. Sponsors do a lot of work. But they should be reasonable and clear.

Common fees include:

• Acquisition fee: paid when the property is bought, often 1% to 3% of the purchase price

• Asset management fee: paid yearly for running the investment

• Refinance or disposition fees: paid when the property is refinanced or sold

I've passed on deals where the upfront fees were so high the sponsor got paid well even if investors never did. The sponsor should make most of their money when you make yours.

Also ask how much of their own money the sponsor is putting in. Real co-investment is a good sign.

6. The financials behind the sponsor

This one is often skipped, and it shouldn't be.

For larger operators, and especially for private debt funds, ask for audited financial statements. I've walked away from deals where the sponsor's audit showed a business that only stayed afloat by raising new money. On the surface, everything looked fine.

If a sponsor won't share financials, or gets defensive when you ask, that's your answer.

7. Background checks

These take an hour and are worth it:

• Search the SEC's enforcement actions and FINRA BrokerCheck.

• Search court records for lawsuits involving the sponsor or their companies.

• Google the principals' names along with "lawsuit," "fraud," and "complaint."

• Check review sites like InvestClearly for reviews from past investors.

8. References you pick

Sponsors will happily connect you with happy investors. Ask instead to talk to someone who has invested in several of their deals, including one that underperformed.

If you know other investors, ask around. In this business, reputations travel.

9. The legal documents

The private placement memorandum (PPM) and operating agreement are long. A few sections deserve your full attention:

• Capital calls. Can they require more money from you? What happens if you don't pay?

• Removing the sponsor. Can investors replace the GP for cause? What vote does it take?

• Key person. What happens if the lead sponsor leaves or dies?

• Distribution waterfall. How is cash split? Here's how waterfalls work, with real math.

Have your own attorney review anything you don't understand.

Red flags that make me walk

• Pressure to commit before you've had time to review the documents

• Projections far above similar deals in the same market

• Vague answers about past deals that went badly

• Fees that pay the sponsor well regardless of performance

• Floating-rate debt with no rate cap

• No willingness to share financials or connect you with past investors

Use a checklist

I built a 101-point checklist for exactly this, because it's easy to get excited about a deal and skip steps. It covers the sponsor, the deal, and the documents.

It's part of the free Engineer's Investing Toolkit, along with a quick deal review guide and a portfolio tracker.

For property-level questions specific to apartments, see How to Vet an Apartment Syndication.