The 15-Item Due Diligence Checklist Most Passive Investors Skip
Simple, practical, and painful — the things every LP should verify before wiring capital.
Passive investing is not passive at the diligence stage. Here's the checklist I run before every commitment.
On the sponsor: 1. Track record with backup documentation — not just a pitch deck. 2. Personal financial statement (yes, ask for it). 3. Background check — literally, use a service like BeenVerified or hire an attorney. 4. References from investors on deals that DID NOT go well. 5. Prior legal disputes or SEC issues.
On the deal: 6. Trailing 12-month P&L and rent roll (both, not just one). 7. Third-party appraisal or broker opinion of value. 8. Physical inspection report from a licensed inspector. 9. Environmental Phase I report. 10. Insurance quote from a licensed broker — not the sponsor's number.
On the structure: 11. Full PPM and operating agreement — read every page. 12. Waterfall math on a spreadsheet YOU built. 13. Fee schedule — total dollar amount over the hold, not just percentages. 14. Rights and remedies if the sponsor underperforms. 15. Tax structure — K-1 timing, UBTI issues if you're in an IRA.
Doing this takes 8-12 hours per deal. Which is why most investors skip 80% of it. The ones who don't skip it are the ones who compound wealth over 20 years instead of getting wiped out in one bad cycle.
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