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Private investments—particularly in real estate—can offer meaningful benefits for high-net-worth investors, but they also require a higher level of scrutiny. I like to say that capital is a commodity, but experience is the moat. Private investments are not created equal, and we need methods to sift through them.
In our experience, successful private investments are rarely the result of luck or timing. They are the product of disciplined evaluation, professional underwriting, and a sober understanding of risk.
Below are several key factors we consider before proceeding with any private investment.
1. Evaluate the Operator First
Before reviewing the materials or projections, the first step is to assess the person or team behind the deal. A good opportunity can go very wrong in the hands of an inexperienced operator.
- What is their track record?
- Have they completed similar projects under similar conditions?
- Do they have direct experience with the asset class, region, or structure they are proposing?
A capable operator can navigate average conditions well. An inexperienced one can mess up great conditions, much like missing an extra point in football. The quality of the operator is often the most important risk variable.
2. Confirm Diligence Beyond the Pitch Deck
A common red flag is a visually compelling pitch with minimal depth. Sophisticated investors should expect more than broad narratives and high-level return targets. A story is not a pitch, no matter how clever.
Key questions include:
- Has a third-party rent study been completed?
- What is the all-in cost per unit (acquisition, construction, carry)?
- How are the financing terms structured, and who are the lending partners?
- What are the assumptions around timelines and lease-up?
Most return models hinge on two core variables: projected rental income and development cost. If either is unclear, the rest of the model is unreliable.
Also, on a personal note, many of our clients have been approached by friends or family with opportunities. We strongly emphasize the need for professional due diligence in any significant commitment. Bad deals create bad relationships. Good due diligence is the best safeguard.
3. Consider the Nature of the Opportunity
Many private deals are described as “off-market” or “relationship-driven.” While that may suggest exclusivity, it is not an inherent advantage. Private market inefficiencies can create opportunity, but they can also obscure material risks.
The absence of competition does not guarantee value. It is important to evaluate the judgment of the sponsor and their rationale for pursuing the opportunity.
Final Thoughts
By default, we see private investments as a highly beneficial consideration for many of our clients. That said, private investments are about process, not optimism. The most reliable outcomes tend to come from repeatable evaluation—structured, detailed, and fully integrated into the broader financial plan.
Anything less is speculation dressed as strategy.
