Due Diligence Checklist for Private Real Estate Investments

Investing in private real estate requires a different kind of due diligence than buying a stock or a mutual fund. There is no SEC filing, no analyst coverage, and no daily price quote. You are relying on a sponsor's judgment, execution, and integrity — and you need to verify all three before you invest.

This checklist covers the key areas of due diligence for any private real estate investment. It is organized into five categories: sponsor evaluation, deal structure, financial analysis, property and market, and legal review.

The sponsor is the most important variable in any private real estate investment. A great deal with a poor operator will underperform. A good operator can navigate challenges that would sink a less experienced team.

• Request a complete list of past deals, including acquisition price, exit price, hold period, and actual investor returns
• Verify returns independently where possible — ask for K-1s or investor statements from prior deals
• Understand how many deals have been completed versus how many are still active
• Ask specifically about deals that underperformed or lost money — how the sponsor handled adversity is as important as their wins
• Confirm the sponsor has experience in the specific asset type and geography of the current deal

• Understand who is actually doing the work — acquisitions, project management, investor relations
• Assess key-person risk: what happens if the lead sponsor is incapacitated?
• Review the sponsor's organizational structure and any affiliated entities
• Check for any regulatory actions, lawsuits, or bankruptcies involving the sponsor or principals

• Confirm the sponsor is co-investing their own capital — and how much
• Understand the fee structure: acquisition fee, asset management fee, disposition fee, and any other fees
• Evaluate whether the carry structure incentivizes the sponsor to maximize investor returns

• Review the waterfall carefully — understand exactly when and how you get paid
• Confirm the preferred return rate and whether it is cumulative
• Understand the profit split above the preferred return
• Review capital call provisions — are you obligated to contribute additional capital if needed?
• Understand the sponsor's authority to make major decisions without investor consent
• Review investor protections: voting rights on major decisions, removal of the sponsor for cause
• Confirm the minimum investment and whether there is a maximum
• Understand the hold period and the sponsor's flexibility to extend it

• Review the financial model in detail — do not accept a summary
• Stress-test the key assumptions: exit price, renovation costs, timeline, rental rates
• Ask what happens to returns if renovation costs come in 15% over budget
• Ask what happens if the exit takes 6 months longer than projected
• Ask what happens if the exit price is 10% below the base case
• Confirm the IRR calculation methodology — is it calculated on invested capital or total project cost?

• Understand the debt structure: loan amount, interest rate, term, and amortization
• Confirm whether the rate is fixed or floating — floating rate debt adds risk in a rising rate environment
• Review the loan covenants and what triggers a default
• Understand the refinancing plan if the project extends beyond the loan term
• Confirm the loan-to-cost ratio and whether it is appropriate for the risk profile

• Review projected cash-on-cash returns during the hold period
• Understand when distributions are expected and how frequently
• Confirm whether distributions are paid from operations, refinance proceeds, or both
• Review the reserve account — is there adequate capital set aside for unexpected costs?

• Review the inspection report — understand the condition of the structure, systems, and major components
• Confirm there are no environmental issues (Phase I environmental assessment)
• Review the title report for liens, easements, or encumbrances
• Understand the zoning and confirm the intended use is permitted
• Visit the property if possible — photos and videos are not a substitute for seeing it in person

• Review the scope of work in detail — line-item budgets for every trade
• Confirm the renovation budget is based on contractor bids, not estimates
• Understand the contingency built into the budget (10–15% is standard)
• Review the project timeline and identify the critical path items
• Confirm the sponsor has relationships with contractors who have completed similar work

• Review comparable sales (comps) for the exit — are the exit assumptions supported by recent transactions?
• Review comparable rentals if the strategy involves a rental hold period
• Understand the supply and demand dynamics in the submarket
• Assess the neighborhood trajectory — is it improving, stable, or declining?
• For Connecticut deals, review our Mid-2026 Market Outlook for context on current conditions

• Read the Private Placement Memorandum (PPM) in full — particularly the risk factors section
• Have a real estate attorney review the operating agreement before you sign
• Confirm the offering is properly structured under Regulation D (Rule 506(b) or 506(c))
• Verify your accredited investor status meets the requirements for the offering
• Understand the subscription agreement you are signing
• Confirm the process for receiving K-1s and other tax documents

No due diligence checklist is complete without a list of warning signs that should give you pause.

Pressure to invest quickly. Legitimate sponsors give investors adequate time to review materials. Artificial urgency is a manipulation tactic.

Unwillingness to share track record details. A sponsor who cannot or will not provide verifiable information about past deals is hiding something.

Projections that seem too good. If the projected returns are significantly above market norms without a clear explanation of why, the assumptions are probably too aggressive.

Excessive fees. Fees that total more than 3–4% of the deal value before the carry are a sign that the sponsor is prioritizing their own compensation over investor returns.

No co-investment. A sponsor who is not investing their own capital alongside investors has limited skin in the game.

Vague answers to specific questions. A good operator knows their deal inside and out. Vague or evasive answers to specific questions about the financials, the renovation plan, or the exit strategy are a red flag.

Due diligence takes time, and it should. The goal is not to find a reason to say no — it is to build enough confidence to say yes with conviction.

The best investments we have made at Spirit Realty Ventures have been ones where investors asked hard questions, pushed back on our assumptions, and ultimately decided to invest because they were genuinely convinced by the answers. That kind of informed partnership produces better outcomes for everyone.

If you are evaluating one of our deals, we welcome your due diligence. Reach out to our team with any questions, or review our investor overview to start the conversation.