5 Critical Questions to Ask Before You Invest

5 CRITICAL QUESTIONS TO ASK BEFORE INVESTING

When you invest in a multifamily deal, you’re trusting someone else to steward a chunk of your wealth—often for five to seven years. In a recent conversation, Harland Merriam and fellow investor Mike unpacked the five questions they lean on to gauge whether an operator is worthy of that trust. Here’s the quick-read version.

1. What’s your track record—good and bad?

Look for operators who have been through multiple full deal cycles, not just acquisitions. Ask:

• How far back does your experience go?
• How did actual returns compare with initial projections?
• Tell me about a deal that went sideways—what happened and how did you respond?

A history that spans downturns (think 2008 or the 2022–24 rate hikes) shows they’ve weathered storms, not just sunshine.

2. How conservative are your underwriting assumptions?

Dig into the numbers behind the pitch:

• Exit cap rate—does it assume a higher cap (more conservative) than today’s?
• Rent and income growth—are they data-driven or wishful?
• Expense buffers—what if taxes, insurance, or repairs spike?

Stress-test the model: “What happens if rents stay flat or occupancy dips by 5%?” A solid operator can show you the impact without flinching.

3. How are returns—and risks—shared?

Alignment matters. Clarify:

• General-partner fees and profit splits
• “Skin in the game” (Mike likes to see GPs put in ~10 % of the total equity)
• What each party earns when the deal outperforms—or underperforms

You shouldn’t feel the operator is stripping value before investors get paid.

4. What capital reserves back the business plan?

Big roofs, HVAC systems, or surprise sewer repairs can devour cash. Verify:

• Up-front reserves for operations and capital expenses
• A strategy for unexpected costs—additional capital calls or built-in buffers?

Adequate liquidity protects principle and keeps distributions flowing.

5. How—and how often—will you communicate?

Silence breeds anxiety. Ask for samples of recent investor updates and pin down:

• Frequency (monthly is typical; weekly during heavy renovations)
• Format (email digest, video brief, full financials)
• Protocol when surprises arise—do they notify mid-cycle?

Transparent, timely reports turn “unknowns” into “knowns,” sustaining investor confidence.

Bottom line: These five questions reveal an operator’s competence, character, and commitment. Use them before wiring your hard-earned capital—or reach out to Harland and Mike for a deeper checklist (including their free e-book Three Keys to Unlocking Your Retirement Dream). Protect the principal first; the profit will follow.