Supreme Court Justice Oliver Wendell Holmes had a knack for asking the kind of questions that flipped the frame.
He wouldn’t just ask “what happened?” – he asked questions like “what principle is at stake?” or “what if the roles were reversed?”
In Abrams v. United States, his dissent changed how future courts (and even our discourse today) approach free speech – not because he argued the loudest, but because he asked the better questions.
The best passive investors I know operate the same way.
They don’t just ask about location or returns when evaluating a deal. They reframe the whole deal with a few unexpected questions that get to the heart of what really matters.
So today, I'm sharing three of my favorite “uncommon questions” that cut straight to what matters in any deal – questions that reveal more in two minutes than most investors learn in two hours of due diligence.
Question #1: “How does the sponsor make money?”
This seems obvious, right? Most deals have the standard fees: acquisition, asset management, disposition, and some sort of GP carried interest or promote.
But the deeper question is: How is it structured? Under what specific circumstances do they make money?
Even more importantly: Is there a situation where the sponsors make a lot of money while the investors make nothing?
I'm not arguing that sponsors shouldn't take fees – they absolutely should. But you need to know precisely where their compensation comes from and how it relates to your returns as a passive investor.
Ideally, there's direct alignment. While sponsors may take some fees to keep the lights on, the bulk of their compensation should only happen if passive investors also succeed.
The best GPs I know have high conviction in their deals. They take modest fees to cover operations, but the vast majority of their compensation comes from their carried interest – meaning they only win big when you win big.
If the incentives are misaligned, it doesn't mean you should automatically pass, but it warrants further scrutiny. Is there a lack of conviction on the GP's part? Are they trying to make up for struggles elsewhere?
Question #2: “How do I lose money on this deal?”
Everyone loves to ask how they'll make money. Few want to contemplate how they might lose it.
Yet this question is crucial: What scenarios result in me losing capital or significantly underperforming projections?
This isn't about finding a risk-free investment (which doesn't exist), but about going into any deal with eyes wide open about the specific risks you're taking.
Personally, I lean on a simple risk management framework from my days in tech and security – one you can easily adopt yourself:
What's the likelihood of something going wrong?
What's the impact if it happens?
What mitigations are in place?
If the sponsor only ever talks about upside and best-case scenarios, never addressing the downside risks, that in itself is a massive red flag.
Question #3: “What has to go right for this to work?”
This is the flip side of Question #2, and it helps identify the strongest levers in the deal.
What's really going to move the needle? Is it the renovations? Rent growth? Operational improvements?
And more importantly: Which ONE factor has the biggest impact on returns?
Are the projections banking on:
An exit cap rate lower than today's market rate?
Rent growth significantly above market averages?
Cost savings in areas that are largely uncontrollable?
Favorable debt terms that may not be available at refinance?
Understanding which pieces of the business plan impact returns the most gives you incredible insight into the deal's actual risk profile. It's about knowing what must go right, not just what could go right.
The Bottom Line
These three questions cut straight to the heart of any deal.
And even better: they work for both new and experienced investors, and apply to virtually any investment opportunity.
As a GP myself, I can tell you that investors who ask these questions immediately earn my respect. They signal that they're thoughtful, risk-aware, and serious about their investment decisions.
And from your perspective as an LP, these questions help you make better investment decisions by exposing what's really happening beneath the glossy pitch decks and projected returns.
So the next time you're evaluating a deal, channel your inner Oliver Wendell Holmes – don't just ask the standard questions. Reframe the conversation in ways that reveal what truly matters.