Most passive investors can avoid costly mistakes by asking three simple questions before investing.
The first question is how much time the debt provides.
Experienced investors want to understand the loan term, whether the debt is fixed or floating, how the investment performs if interest rates increase, when the loan matures, and what realistic refinancing options are available.
The second question is how much protection the reserves provide.
Strong deals are built with operating reserves that can absorb unexpected challenges.
Experienced investors evaluate how long those reserves could support the property if occupancy declined below expectations or operating performance weakened.
These questions reveal far more about the strength of a deal than projected returns ever will.
The best investments are designed to withstand uncertainty before they are designed to maximize yield.
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