Private Real Estate Due Diligence Checklist: 25 Questions to Ask Before You Invest

Private real estate investing can be one of the most rewarding ways to put capital to work — but the difference between a great deal and a painful loss often comes down to how well you asked questions before you signed anything.

This checklist is built for passive investors: people who are considering lending capital or taking an equity position in a private real estate deal, but who are not operators or developers themselves. Whether you are looking at your first promissory note or your fifth equity placement, these 25 questions give you a structured way to evaluate any opportunity before you commit.

This article is educational only and is not an offer to sell securities.

1. Operator Due Diligence — Who Are You Actually Trusting?

Every deal is only as solid as the team behind it. Before anything else, get clear on who is operating the deal and whether they have earned that trust.

1. How many deals has this operator completed in the last three years — and what were the outcomes? Ask for a written track record. Verbal summaries are not enough.
2. How long has the operating entity been in business? Search the Texas Secretary of State database to verify entity formation date and standing.
3. Does the operator hold any required licenses for this type of work? For deals involving brokered transactions in Texas, verify active TREC licensure.
4. Can you speak directly with two or three past investors? Reputable operators welcome this. Hesitation is a signal.
5. Has the operator ever had a deal go sideways — and how did they handle it? Every experienced operator has faced adversity. How they respond tells you more than their best-case stories.

2. Deal Structure — What Are You Actually Buying?

"Private real estate investment" covers a wide range of instruments. Know exactly what you own.

1. Is this a debt instrument (promissory note) or an equity position? These carry different risk profiles, different timelines, and different tax treatment.
2. If it is a note, what lien position are you in? First lien means you are first in line if the project fails. Second or third lien carries meaningfully more risk.
3. What is the target hold period, and what happens if the project runs over? Understand whether extensions are at the operator's discretion and whether your rate changes.
4. Are there any preferred returns, waterfall structures, or promote arrangements? Get the exact language in writing — verbal summaries of economics routinely diverge from the actual documents.
5. How and when are distributions paid? Monthly, at exit, or somewhere in between — and what triggers a delay?

3. Property and Project Fundamentals — Does the Deal Make Sense on Paper?

Numbers built on bad assumptions collapse. Verify the foundation before you evaluate the returns.

1. Has a title search been completed, and are there any liens, easements, or encumbrances on the property? Title issues in Texas can be complex, particularly on older properties in DFW's inner-ring suburbs.
2. Are all required permits pulled and approved by the relevant municipality? In North Texas, permitting timelines vary significantly between cities like Frisco, Garland, and Dallas proper.
3. What is the basis for the after-repair value (ARV) or projected exit value? Ask to see the comparable sales (comps) used — recent sales, within one mile, similar square footage and condition.
4. What is the current condition of the property, and has an independent inspection been completed?
5. What comparable rentals or sales support the demand assumptions in this market? DFW is a strong market overall, but neighborhood-level dynamics matter.

4. Financial Projections — Are the Numbers Honest?

Projections are not promises. Your job is to stress-test the assumptions, not just read the headline return.

1. What are the all-in cost assumptions — acquisition, renovation, carry, and disposition? Ask for a line-item budget, not a summary.
2. What is the sensitivity if costs run 10–20% over budget? A well-structured deal survives normal cost overruns. If a 15% budget increase breaks the deal, the cushion is too thin.
3. What is the target return to investors, and under what scenario is that achieved? Illustrative returns help you understand the model — but verify the assumptions behind them.
4. What is the exit strategy, and what is the backup if the primary exit does not materialize? Sell, refinance, or hold — and what timeline applies to each?
5. Is there a capital reserve, and how is it funded? Projects without reserves have no buffer when the unexpected happens.

5. Documentation — What Should You Actually Receive?

If it is not in writing, it does not exist. Here is what qualified investors should expect to receive before committing capital.

1. Is there a signed promissory note or operating agreement that reflects the terms you were quoted? Read it — or have your attorney read it — before you sign anything else.
2. Has the operator filed a Form D with the SEC for this offering? You can verify this yourself on SEC EDGAR. An unfiled Form D on a private placement is a compliance gap.
3. Is there a private placement memorandum (PPM) or equivalent disclosure document? Not every structure requires one, but the more complex the deal, the more you need formal disclosure.
4. What reporting will you receive during the hold period? Monthly updates, quarterly financials, and exit notices should be spelled out in your agreement.
5. Who holds the funds during closing, and what are the disbursement conditions? Escrow arrangements protect both parties — understand who controls the money at each stage.

Putting the Checklist to Work

Due diligence is not about finding reasons to say no — it is about making sure you understand exactly what you are saying yes to. The best operators welcome these questions because thorough investors make better long-term partners.

At EXL Capital Group, our team works with pre-qualified investors in the Dallas–Fort Worth market and prepares deal packages that address these questions before they are asked. If you would like to understand how we structure private real estate opportunities, the links below are a good starting point.