Before You Wire a Dollar: The Real Meaning of a Term Sheet
Private real estate investments often begin with a pitch deck, a polished PDF, and a term sheet that outlines the supposed “deal.” But seasoned investors know that what looks good on paper can unravel fast if you don’t ask the right questions up front.
At Infinity⁹, we believe that smart capital isn’t just about finding opportunities—it’s about knowing how to interpret them. A good term sheet isn’t just a summary; it’s a litmus test. It reveals how aligned the sponsor is with your success, how realistic the projections are, and whether the legal structure protects your interests.
Here’s what to look for—line by line—before you ever initiate a wire transfer.
1. Alignment: Is the Sponsor Really Investing With You?
Ask one simple but telling question: “How much of their own money is in this deal?”
When a sponsor has skin in the game, the deal structure changes. They think differently about risk, timelines, and execution. Look for a co-investment of at least 5–10% of the total equity. If the sponsor is contributing less than that—or nothing—that’s a red flag.
Also ask whether they get paid before or after you do. A sponsor who gets their profits only after hitting performance hurdles is more likely to stay focused on outcomes, not just fees.
2. Fee Stack: Who’s Really Getting Paid—And When?
Many term sheets bury fees in fine print or bundle them with vague labels like “asset management.” Be direct. Request a full fee waterfall, including:
- Acquisition fees
- Asset management fees
- Disposition fees
- Construction or development fees
- Promote / carried interest
- Refinance fees
What you’re looking for is incentive alignment, not overhead extraction. If the sponsor’s compensation is front-loaded or guaranteed regardless of performance, proceed with caution.
At Infinity⁹, our approach to fees is simple: we earn more when you do.
3. Legal Protections: How Is Your Investment Structured?
Most private real estate deals are structured through an LLC or LP. But the devil is in the details. Ask:
- Are investor rights clearly outlined in the operating agreement?
- Can the sponsor dilute your equity?
- Do you have voting rights for major decisions?
- Are there capital call obligations that could blindside you?
Clarity is everything. A vague or overly complex structure usually favors the sponsor—not the investor.
4. Exit Strategy: Is It Realistic, or Just a Slide in the Deck?
Projected IRR often looks impressive—but what’s the actual path to liquidity?
Understand:
- Timeline to exit or cash flow
- What triggers a sale or refinance
- Market assumptions behind the exit cap rate
- Whether the business plan includes value creation or just rent collection
Many “value-add” deals never add much value. Ask for a pro forma with multiple scenarios: base case, downside, and upside. If there's only one version of the future, it's probably fiction.
5. Track Record: Past Deals Don’t Lie
A beautiful deck doesn’t matter if it’s backed by a mediocre history.
Don’t just ask about average returns. Ask for actual performance on past deals, including:
- Exit timing versus projection
- IRR and equity multiple vs. pro forma
- Occupancy rates and tenant retention
- Legal or financial issues that arose
Sponsors with nothing to hide will welcome this conversation. Those who deflect are telling you more than they realize.
6. Liquidity and Redemption: Can You Get Out If You Need To?
Unlike public REITs, most private real estate deals are illiquid. But that doesn’t mean you should have zero flexibility.
Ask:
- Is there a redemption mechanism?
- Can you transfer your interest?
- Are there penalties or holding periods?
- What happens in the event of a sponsor default?
Your money doesn’t need a visa—but it does need a plan. Especially if life circumstances change or you want to reallocate capital.
7. Capital Framework: Where Does This Deal Fit in Your Strategy?
This question isn’t about the deal—it’s about you.
At Infinity⁹, we help investors build what we call a Capital Framework: a personalized map of risk, return, time horizon, and liquidity needs. Not every real estate deal fits every portfolio. Some provide stable income. Others offer appreciation but require patience.
Before you wire funds, ask: Does this deal advance my strategy—or distract from it?
Final Thought: There Are No Bad Markets, Just Bad Strategies
A great term sheet is a starting point—but it’s not enough. The smartest investors interrogate the details, pressure-test the assumptions, and think in frameworks, not forecasts.
At Infinity⁹, we’ve built our model around institutional-quality real estate opportunities that reward long-term thinking and disciplined underwriting.
Before you wire a dollar, wire your questions. The answers will reveal more than the deck ever could.
