Real Estate Private Credit Due Diligence: 12 Questions Every Accredited Investor Must Ask Before Committing

Why it matters: GP co-investment aligns incentives. A general partner with personal capital in the fund is more incentivized to protect it than one who earns fees regardless of performance. The ILPA DDQ requires disclosure of this figure.

Red flag: Under 1% of fund size. Or: "The GP's commitment is confidential."

Green flag: At least 1-3% of total fund capital, with a description of the GP's loss-sharing position relative to LPs.

Question 7: Who performs the independent asset valuations, and how often?

Why it matters: The June 2026 SEC risk alert placed valuation methodology at the center of its conflict-of-interest analysis. Funds that value their own assets without independent review have every incentive to mark them generously when fundraising is active. CohnReznick LLP conducting quarterly independent valuations is substantively different from a manager-prepared estimate reviewed annually by the fund's own auditor.

Red flag: "Valuations are performed internally by our credit team." Annual review only. No named independent firm.

Green flag: A named third-party firm conducting quarterly reviews, with methodology disclosed in audited financials.

Question 8: How much NAV-level debt does the fund carry?

Why it matters: Individual loans may sit at 70% LTV. But if the fund itself has borrowed against its loan portfolio (see our analysis of NAV financing and hidden fund-level debt), your effective exposure is far higher. A fund carrying 1.5x NAV debt on a 70% LTV book is exposed to real estate at 105% of value.

Red flag: "We use a credit facility for liquidity purposes." No specific debt ratio disclosed. Borrowing terms not documented in the PPM.

Green flag: Total debt-to-equity disclosed, capped at 1:1 or lower, and reported quarterly to LPs.

Question 9: What are all the fees, including origination, management, performance, and any affiliate fees?

Why it matters: Fee stacking is endemic. A 1.5% management fee and 20% carry look reasonable on their own. Add origination fees of 2-3% on each loan and servicing fees through an affiliated entity, and total economic extraction can exceed 4-6% annually. The SEC documented this pattern in its June 2026 alert.

Red flag: Fee disclosure limited to management fee and carry. Origination, servicing, extension, and modification fees not itemized.

Green flag: A complete fee table in the PPM covering every revenue stream, with dollar-amount examples at a defined fund size.

Question 10: Have you ever had an SEC examination or enforcement action?

Why it matters: Every registered investment adviser should expect periodic SEC examination. A manager who discusses findings directly is demonstrating transparency. Deficiency letters are not disqualifying if resolved properly.

Red flag: Refusal to answer. "We've never been examined" is implausible for any firm operating more than 5-7 years.

Green flag: Clear yes or no on examination history, summary of deficiencies and resolution. Cross-check the manager's Form ADV Part 2.

Question 11: What is your concentration by property type, geography, and borrower?

Why it matters: Funds marketed as "diversified" often are not. A fund with 60% of its book in multifamily value-add across three Sun Belt metros is a concentrated bet. A single borrower at 15% of the portfolio creates binary risk. Cliffwater's research repeatedly identifies concentration as the primary driver of tail-risk outcomes in private credit. You need numbers, not narrative.

Red flag: "We're well diversified across multiple markets." No specific data.

Green flag: A loan tape summary showing top 10 borrowers by balance, property type breakdown, geographic breakdown by metro, and maximum concentration limits documented in the PPM.

Question 12: Can I speak directly to a current LP?

Why it matters: A current LP tells you things the PPM cannot: how responsive the manager is, whether quarterly reports arrive on schedule, whether distributions have been delayed, and what the LP experienced during stress. A manager who refuses to provide any LP references is telling you something important.

Red flag: "We cannot provide LP references due to confidentiality." Or: only advisory board members are offered, not individual accredited investors comparable to you.

Green flag: Two or three current LPs willing to speak by phone, at least one of whom joined during a period of uncertainty.

How to Score Your Answers

Assign each question a pass or fail. A clear, specific, documented answer is a pass. Vague, deflected, or missing is a fail.

0-2 fails: Proceed to document review. The fund has cleared the baseline governance screen.

3-4 fails: Request written clarification. If that does not resolve the issue, stop.

5+ fails: Walk away. A fund with 5 governance failures offering 12% net returns is not a better bet than a fund with 0 failures offering 9%.

Four fails are automatic disqualifiers regardless of total score: an affiliated loan servicer without independent oversight, no LP references, undisclosed NAV-level debt, or a fee structure not fully itemized in the PPM. See our analysis of private credit yields and risks in 2026 for additional context on evaluating return claims against structural risks.

The Documents You Should Request

The 12 questions are verbal screens. Before committing capital, get the following reviewed by a legal or financial adviser familiar with alternative investments.

Private Placement Memorandum (PPM): Read the risk factors in full. Focus on the conflicts-of-interest section and the complete fee schedule.

Audited Financial Statements (3 years minimum): Confirm the auditor is an independent firm. Review footnotes for related-party transactions.

Form ADV Part 1 and Part 2: Publicly available at the SEC's IAPD database. Part 2 discloses disciplinary history, fee practices, and conflicts of interest. Cross-reference it against what the manager tells you verbally.

Sample Loan Tape: A portfolio snapshot showing loan size, LTV, property type, geography, and loan status. Even a redacted tape tells you whether the portfolio matches what the manager described.

LP References: Request at least two. Call them. For interval funds or non-traded REITs, also request the most recent prospectus supplement and any redemption limit change notices. See our coverage of real estate debt fund yields and liquidity risk for how these structures differ.

Jeff's Closing Framework

I have looked at more than two dozen real estate private credit funds over three years. I have committed to four. The most common reason I walked away from the rest was the manager's response to direct questions.

I walked away from one fund in 2024 because the GP could not tell me who was performing independent asset valuations. They had a named auditor. That auditor did not value the underlying collateral independently. The manager's internal team did. The June 2026 SEC risk alert describes this arrangement as a conflict requiring disclosure. It was not disclosed in that fund's PPM.

I declined a second fund because the total fee picture came to approximately 4.8% per year before any performance allocation. Management fee plus origination fees plus a servicing spread through an affiliated entity. At a 10% gross return target, LPs net 5.2% gross before carry. The disclosure was there, buried across three PPM sections. But it changed the economics.

The funds I committed to shared two traits. The manager answered every question specifically and provided documentation without being asked twice. Every LP I spoke to described the same manager I had met: consistent communication, distributions on schedule, and honest updates when loans had problems. That alignment between what a manager says and what LPs experience is the most reliable signal in this asset class.

This space can deliver what it promises. Bridge lending secured by real property at conservative LTVs, managed by a team with a full-cycle track record, can be a sound part of an accredited investor's alternative allocation. But the SEC told us, with documented evidence, that a meaningful portion of the market does not meet that standard. Use this checklist to find out which side of that line a fund is on. For broader context, see our overview of private credit in 2026: yields, risks, and what accredited investors need to know.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.