A couple weeks ago, we sat down with Bob Fraser, co-founder and CFO at Aspen Funds, for the Wealth Independence Podcast (it’s this week’s episode actually, check out the link below).
We were deep into a conversation about deal analysis when Bob said something that stopped me cold:
When approaching [due diligence of] private placements, you should have a “no” looking for a “yes.” Start with a “no” and look for a “yes.”
Wait, what?
This is the exact opposite of how I (and most every other investor I know) evaluate investment opportunities. The focus is almost always on finding the red flags, not the green ones.
The typical process goes something like this: “Oh wow, this looks great! What are the returns? The returns look excellent! What might go wrong? Eh, not really worried about that. Let’s move forward.”
But Bob’s approach assumes the deal will lose money until proven otherwise.
This might seem like a pessimistic approach – but it’s actually disciplined capital allocation.
Why This Matters
Something I’ve learned after years of watching investors (including myself) make bad decisions: your long-term success often depends more on the deals you don’t do than the ones you do.
But here’s the problem: it's hard to say no when you’re seeing deals with 15%, 20%, sometimes higher projected returns. Money starts burning a hole in your pocket. Especially after a liquidity event, there’s this rush to deploy capital as fast as possible.
That’s exactly when bad decisions happen.
But when you flip the script and hunt for green flags instead of red flags, you become more confident about how the investment won’t fail before you worry about how much it might make.
A Framework for Finding Green Flags
So how do you actually implement Bob’s “start with no” approach?
In my former career in information security, we’d tackle the biggest risks first. And we can apply that same principle here – start with the biggest risks and look for compelling reasons to say yes at each level.
1. Execution Risk
This is the sponsor team (the GPs) – far and away the most important factor.
A great sponsor can pull excellent results from an otherwise mediocre asset in a tough market. Conversely, a bad sponsor can take a great property in a great market and completely trash it.
Look for track record across multiple similar assets, team skillset depth, operational systems, and proof they can execute (not just claims).
2. Asset Risk
What risks are tied to the property itself?
Is there excessive deferred maintenance the team hasn’t uncovered because they didn’t walk every unit? Massive tenant concentration? Bad lease structures? Environmental issues? Is it in a floodplain?
Most importantly: when this asset is “fixed up,” will real people actually want the units at the pro forma rents?
The asset must demonstrate clear value-add potential that aligns with the proposed business plan.
3. Market Risk
You’re betting on a location for 3-7 years. The fundamentals of that market better earn that confidence.
Look for economic diversification (not just one major employer), population growth, employment growth, and favorable supply/demand dynamics for the asset type (multifamily, self-storage, etc.).
Regulatory risks (think “blue” states) aren’t automatically disqualifying, but has this team navigated them successfully before?
4. Financial Structure Risk
Everything else can be perfect, but bad debt structure will sink an otherwise good deal.
What’s the LTV? Fixed or floating rate? Are they buying rate caps? What’s the cash flow compared to debt service (i.e., the debt service coverage ratio)?
And here’s a big one: how many layers are in the capital stack?
If there’s a first position mortgage, mezzanine debt, preferred equity, and then your common equity investment at the end, just remember that a lot of people have to get paid before you see a dime.
The returns should justify this extra (and often hidden or obscured) risk.
The Power of Starting With “No”
Bob’s approach forces you to be an evidence-based investor, not a hope-based one.
Instead of assuming everything’s good and hunting for red flags, you assume the deal will lose money until you find multiple compelling reasons to invest. You want proof for each green flag, not just sponsor promises.
An added benefit is that this discipline naturally improves your deal flow quality over time. You start recognizing better operators, develop instincts for what good deals actually look like, and most importantly, preserve capital for the opportunities that truly deserve it.
Bob’s insight sounds simple, but it’s pretty profound: flip your default assumption from “yes unless” to “no until.” The deals that survive this filter? Those are the ones worth your hard-earned capital.