Costs rise.
A budget is $20,000 short. Does the project have a reserve, must it borrow more, or can investors be asked for additional capital? A reserve is money set aside for surprises, not a guarantee that every surprise is covered.
Risks, Fees & Questions
What should I ask before putting money in?
A useful review looks at the downside, the payments, and the documents. You do not need to know every term before you ask.
Homes sell later.
A three-month delay can mean more interest, insurance, utilities, and other carrying costs before a sale produces cash. Ask what happens when the original financing matures before the project is ready.
Sale prices fall.
Lower sale proceeds leave less to cover costs and payments. A building can have value while investors still lose money because the project owes more than the available proceeds.
Who gets paid, and when?
Ask for every payment in one written schedule. A payment can be earned before investors make a profit, and related businesses can receive more than one type of compensation.
| Possible cost or payment | What to ask |
|---|---|
| Project and construction costs | Who receives the work, who approves changes, and is any contractor related to the operator? |
| Loan interest and financing charges | What rate, loan fees, guarantees, and maturity apply? What happens if the loan cannot be renewed? |
| Manager or development fees | What amount or formula applies, to which base, and when is it payable? Does it continue during delays? |
| Share of profits | Who receives what share, in what order, and only after which payments? How do losses change the calculation? |
| Selling, accounting, legal, and operating costs | Are these included in the budget, estimated separately, or charged to the project later? |
General questions to apply to any private real estate opportunity.
How Fortified can be compensated.
Our fund materials describe organization and due-diligence fees, recurring asset-management fees, development-oversight fees, refinancing and disposition fees, expense reimbursements and possible interest on deferred fees or advances. Property-management services and affiliated contractors may also be compensated where engaged.
Some of these payments can be earned before investors receive a profit. Related businesses can create conflicts over provider selection, pricing and allocation of work. Ask who approves those arrangements and how their terms are reviewed.
Before participating, request one complete written schedule showing each current rate, calculation base, payment date, reimbursement, affiliate relationship and share of distributions. The current offering and governing documents control; this educational summary is not a fee quote or a promise of availability.
What you can expect to examine.
The project
The business plan, local demand, property and construction assumptions, financing, downside scenarios and exit options.
The people and payments
Who makes decisions, who approves related-party work, every fee and reimbursement, and how remaining cash is allocated.
The reporting
The governing documents’ reporting commitments, available financial information and tax reporting. A reporting period is not a promised distribution date.
Our fund materials describe periodic financial-status reporting and annual financial and tax information. Ask for the current reporting schedule and a sample report before investing. Projected results and construction photographs are not a verified investor track record.
What does borrowing change?
Borrowing can let a project control more property with less ownership capital. It also adds required payments and conditions. Investors may be behind the lender in the payment order. A weak sale or a delay can therefore affect ownership capital heavily.
Ask about the amount borrowed, the repayment schedule, who has pledged assets or guarantees, whether the rate can change, and the lender’s rights if the project fails to meet its obligations.
A document checklist you can actually use
- Business plan and budget: how the money will be used, assumptions, reserves, and unfavorable scenarios.
- Offering materials, if provided: the investment’s terms, risks, company information, and conflicts.
- Operating or partnership agreement: ownership rights, decision authority, payment priorities, transfers, and additional capital requests.
- Subscription agreement: the agreement you sign to buy the interest, including representations you make.
- Fee and related-party disclosures: every recipient, calculation, and timing.
- Financial and reporting information: what is available now, what you will receive later, and whether statements are independently reviewed or audited.
Document names differ. Receiving a thick document does not mean a regulator has approved the investment. Ask an independent attorney or adviser to help you understand important rights and obligations.
Questions you can take into any conversation
- What must happen for this project to succeed, and what evidence supports those assumptions?
- How much can I lose, and could I be required or asked to contribute more?
- When could I receive money back, and what could prevent that?
- How do you and your related businesses get paid in a good or bad outcome?
- What investment-management work have you actually completed, separately from construction experience?
- What would make you decide not to do this project?
A useful next step
Who can invest?
Understand eligibility without confusing it with a decision to participate.