This sponsored post was created in partnership with Carlton Lane.

At some point, a lot of physicians seem to go through the same progression with investing.

We learn about index funds. We start contributing to retirement accounts. Hopefully, we build a reasonable financial plan and automate most of it.

Then somebody sends us a private investment opportunity.

Maybe it comes from another physician, a friend, or someone we meet at a conference. Suddenly, we are looking at a 60-page document filled with terms like preferred return, IRR, equity multiple, and waterfall.

And if you are anything like me, the first thought is usually: Am I supposed to understand all of this?

Private real estate can have a place in a financial plan. But evaluating it is different from buying an index fund. Your money may be tied up for years, the information can be harder to assess, and the outcome depends heavily on the people operating the investment.

So where should we begin?

That was the question behind a recent conversation I had with Rob Anderson of Carlton Lane. My biggest takeaway was that physicians do not need to become professional real estate underwriters. But we do need a way to work through the decision.

For me, that starts with four questions:

• Does the commitment fit my financial plan?
• What assumptions drive the projected return?
• What happens if those assumptions are wrong?
• Who gets paid, and who controls my money?

Let’s walk through them.

Start With Your Financial Plan

Before looking at the projected return, ask whether you can afford to have this money unavailable for longer than expected.

If I own an index fund and need cash, I can generally sell shares. I may owe taxes or have to sell during a market downturn, but there is a straightforward way to access my money.

That is not how a private real estate investment usually works.

If you own part of a 300-unit apartment building, you cannot call the sponsor and ask them to sell apartment number 214 so you can get your money back.

You may receive distributions along the way. But getting your original investment back generally depends on a sale, refinancing, or another event that makes cash available. The terms of the investment determine your options.

And the timing is uncertain.

A presentation might project a three-year hold. That does not mean your money will be returned in three years. Financing can become harder to obtain. Construction can take longer. The market may be unfavorable when the sponsor originally planned to sell.

An extended timeline does not automatically make the investment bad. But it can make the investment a bad fit for you.

If you need that money for your child’s tuition in three years, a projected three-year hold does not give you enough certainty to plan around.

For physicians, this matters because one of the reasons we build wealth is to create more flexibility. We do not want to commit money to an investment and then find ourselves under financial pressure because we misunderstood when it would be available.

Before asking what a deal might earn, ask what committing the money would mean for your own life.

Look Behind the Projected Return

Once the commitment makes sense for your financial plan, the next question is whether the projected return rests on reasonable assumptions.

It is very easy to make a spreadsheet look good.

Every real estate projection depends on estimates. What rents can the property charge? How quickly will they grow? What will insurance and property taxes cost? How much will renovations or construction cost? What will a buyer eventually pay for the property?

Change those assumptions and you change the return.

Imagine a deal that assumes rental income will grow 3.5% each year while expenses grow only 2%. That difference may look small. But over several years, it can meaningfully affect the projected result.

The question is whether there is evidence to support it.

This reminds me of reviewing a patient’s chart.

As a medical student, I could look at 50 pages and have no idea what actually mattered. Everything seemed equally important because I had not yet learned where to focus.

Now I can usually scan the same chart and know where to look.

Experienced real estate investors do something similar. They know which assumptions deserve the most attention because those assumptions can make or break the investment.

We may never develop that level of expertise. But we can learn enough to ask more useful questions:

• What market evidence supports the projected rents and rent growth?
• Are insurance expenses based on current quotes or older estimates?
• How was the expected sale price determined?

You do not have to know every answer before asking the question. But you should be able to understand the explanation, including where the sponsor is relying on an estimate rather than something already known.

A projected internal rate of return, or IRR, accounts for both the amount and timing of an investment’s cash flows. It can be useful. But the number on the first page only means so much until you understand what produced it.

Ask What Happens When Things Go Wrong

Understanding the assumptions is one step. Testing what happens when they are wrong is another.

One of the points Rob emphasized in our conversation was that underwriting should leave room for things to go wrong.

Maybe rents grow more slowly. Maybe insurance costs more. Maybe refinancing is more expensive or the property takes longer to sell.

These are possibilities worth examining before committing your money.

Ask the sponsor to show you what happens under less favorable conditions. If rents stay flat, can the property still cover its expenses and debt payments? If the sale price is lower than projected, how does that affect investors? If refinancing is delayed, what options does the project have?

There is a difference between earning less than expected, receiving no distributions for a period, and being asked to contribute more money. You want to understand which outcomes are possible and what could lead to them.

I would much rather see reasonable assumptions with room for disappointment than an attractive projection that requires everything to go exactly as planned.

That does not mean a conservative-looking spreadsheet guarantees a good investment. It means you have a better starting point for understanding the risk.

This was one of the parts of my conversation with Rob that I found most useful. Hearing him explain why the assumptions matter helped me think about what to ask beyond the return on the first page.

If you want to hear how he approaches those questions, you can watch our full conversation below.

Understand the Sponsor’s Incentives and Your Rights

The numbers are only part of the decision. We also need to understand the people and agreements behind the property.

One concept Rob discussed was pursuit costs.

Before a developer raises investor money, they may have already spent money on architects, engineering, legal work, permits, and other expenses needed to pursue the project.

Now put yourself in their shoes. You have invested time and money. Employees are working on the project. Walking away would be expensive.

That creates an incentive to move forward.

It does not mean the developer is dishonest. But it helps explain why we should evaluate the opportunity independently of the enthusiasm of the person presenting it.

Rob described an approach I liked: try to kill the deal.

Instead of deciding that you want to invest and then looking for reasons to justify it, look for what might make you walk away.

Which assumptions seem aggressive? What risks are getting less attention? What information is missing?

For me, the useful part of that approach is giving yourself permission to pass. Someone else has spent months pursuing the project. You are still deciding whether it belongs in your financial plan.

The goal is to understand what could go wrong and decide whether you are comfortable accepting those risks. If you cannot assess an important part of the investment, that is a reason to get help or pause.

This is also where trust and due diligence can get confused.

We meet the sponsor on Zoom. They seem knowledgeable. They answer confidently. Another physician we respect has invested with them.

Eventually, we find ourselves asking: Do I trust this person?

Trust matters. You are giving someone else control of your money.

But an honest person can still make a poor investment. A capable operator can still use optimistic assumptions. A confident explanation can still leave important questions unanswered.

So look at the investment’s structure as well as the sponsor:

• What fees does the sponsor receive, and when do they share in profits?
• How much of their own cash is invested alongside yours?
• Who controls decisions about borrowing, refinancing, and selling?
• Can investors be asked to contribute additional capital, and what happens if they do not?

Those answers should be consistent with the investment documents. If you need qualified help to understand the documents, get it before signing.

Once your money is committed, the agreement matters more than how reassuring the introductory call felt.

Bring the Decision Back to Your Own Goals

Medicine trains us to become experts in a complicated field. That can make it uncomfortable to admit when we are beginners somewhere else.

I know I have made financial mistakes because I thought I understood something better than I actually did.

Private investments can make that especially easy. A spreadsheet might show a return to the decimal point. But a precise projection is still a projection.

When someone sends you a private real estate deal, give yourself permission to slow down.

Start with your financial plan. Look behind the projected return. Ask what happens when things go wrong. Understand the sponsor’s incentives and your rights.

You may decide to invest. You may decide you need more information. You may decide to pass.

Any of those can be a good decision.

The goal is to build wealth in a way that supports the life we want. An investment should earn its place in that plan.

What do you think? Have you evaluated a private real estate deal before? What helped you decide whether to invest? Let me know in the comments below!