Before you put money into a real estate deal, whether that is a single note, a pool of notes or a fund run by someone else, the questions you ask matter more than the projections you are shown. Any deal can look good on a spreadsheet. These ten questions are designed to show you how the person on the other side thinks, what they are assuming and what happens to your money when things go wrong.
They work whether you are buying a note directly from a seller, buying through a broker, or investing with a manager who buys notes for you.
1. What is every assumption behind this number?
A projected yield is the output of a set of assumptions: the property value, the borrower’s payment behavior, how long it would take to foreclose, what it would cost and what the property would sell for at the end. Ask to see each one. Then ask which single assumption, if it were wrong, would hurt the result most.
For a note, the most sensitive assumptions are usually the property value and the time to recover in a default. Our guide to how to price a note as a buyer shows how those inputs drive the price.
2. How much of your own money is in this?
If you are investing alongside a manager or fund, ask how much of their own capital sits in the same deal on the same terms. A manager with real money at risk tends to make different choices from one who earns only fees. There is no right percentage, but “none” is worth noting.
3. How can this deal lose money?
This is the most useful question on the list. A good answer is specific: “If the borrower stops paying and the property is worth 20% less than the broker price opinion, we would recover about this much after legal costs.” A vague answer, or “it can’t,” tells you the person either has not done the work or does not want to share it.
Read the risks of note investing before the conversation, so you know what a complete answer should cover.
4. What protects my money if the market falls?
In notes, the main protection is equity: the gap between what is owed (or what you paid) and what the property is worth. Ask for the ITV, investment-to-value, which is your purchase price divided by the property value. Ask how that value was established, and how recent it is. A drive-by valuation from last month and a seller’s estimate from three years ago are not the same thing.
5. Tell me about a deal that went badly
Anyone who has been in this business for a while has had a borrower stop paying, a title problem or a property that came back in poor condition. Ask for one example and what they changed afterward. The answer tells you more about judgment than a list of successes does.
6. Who are you, and can I check?
Verify the people and the entity. Search the company and its principals by name. Check the state business registry. Ask whether they hold any state license that applies to what they do and look it up yourself. If you are buying a single note, verify that the seller actually owns it and has the right to sell it. Our guide on how to verify a note seller lists the specific checks.
7. Can I see the documents before I commit?
For a note, that means the collateral file: the original note, the recorded mortgage or deed of trust, any assignments, the payment history, the title report and proof of insurance. For a fund, it means the offering documents, the operating agreement and the fee schedule. If documents only arrive after you have wired money, walk away.
Use a due diligence checklist for note buyers so you check the same things every time.
8. How exactly are you paid?
Ask for every fee in writing: acquisition fees, servicing fees, management fees, a share of profits, a spread between what they paid for a note and what you are paying. Fees are normal. Hidden fees are a warning sign. A simple example of why this matters:
| Item | Deal A | Deal B |
|---|---|---|
| Projected yield on the note | 10% | 11% |
| Annual management fee | 1% | 2% |
| Share of profits above 8% | None | 20% |
| Rough yield to you if the projection holds | About 9% | About 8.8% |
These are round, illustrative figures. The deal with the higher headline number can leave you with less once fees are counted.
9. How and when do I get my money back?
A single note returns your money through payments, a payoff or a sale of the note. A fund may lock your money up for a set period and limit withdrawals. Ask what happens if you need to get out early, what it costs and who decides. Also ask what happens to your money between deals: does it sit idle, earning nothing?
If you are weighing a pooled vehicle, our page on how a note fund works covers the usual terms.
10. What would make you say no to a deal?
A manager or broker who can describe the notes they turn down, and why, has a filter. One who cannot may buy anything that comes in. For a note seller, the equivalent question is “why are you selling?” The answer is often ordinary (retirement, an estate, tired of collecting), but sometimes it tells you the borrower has already started to slip.
How to use the answers
Listen for specifics. Numbers, dates and documents are good signs. Pressure to decide quickly, reluctance to put things in writing and answers that always sound like a pitch are not. Write the answers down and compare them across the deals you are looking at. You are effectively hiring someone to look after your capital, so treat it like an interview.
For a shorter list focused only on single-note purchases, see what to ask before buying a note.
Bottom line
Projections are easy to make and hard to trust. The ten questions above shift the conversation from what the deal could earn to how it could fail, who stands behind it and what it really costs. If the person on the other side welcomes those questions, that is a good sign. If they resist them, you have your answer.
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