Risk vs. Return: Questions to Ask Before You Invest

Every investor wants strong returns, but savvy investors know that high upside often comes with hidden risks. Especially in private placements like those offered by Assemble Capital, it's crucial to evaluate not just projected profits—but the underlying assumptions. In this guide, we’ll equip you with the critical questions to ask before investing in any real estate deal, helping you make smarter, risk-adjusted decisions.

Why Risk and Return Must Be Evaluated Together

Risk and return are two sides of the same coin. Promises of double-digit returns mean nothing if the risk exposure is misunderstood. Investors who only chase yield often ignore red flags in the underwriting. Assemble Capital encourages informed investing—balancing aggressive growth potential with robust risk control.

Question 1: What Are the Underwriting Assumptions?

• Are rent growth and exit cap rates realistic?

• What’s the basis for the projected IRR?

• Are comps and local data used appropriately?

Conservative, data-driven underwriting is a good sign. At Assemble, projections are grounded in Los Angeles market realities and reviewed internally by all departments.

Question 2: How Is the Sponsor Controlling Construction Risk?

• Are materials and labor costs locked in?

• Does the sponsor have in-house construction?

• How are contingencies budgeted?

Construction risk is one of the biggest variables in real estate. Assemble Capital mitigates this by running construction in-house, giving us direct control over costs, quality, and timelines.

Question 3: What Is the Sponsor’s Track Record in Similar Projects?

• Have they delivered similar returns in the past?

• What were the biggest challenges—and how were they handled?

Look beyond glossy pitch decks. Past performance isn’t everything, but it’s a good indicator. Assemble Capital’s completed projects—like The Gonzaga Residence and The Hollywood Marvel—reflect real-world execution and ROI.

Question 4: What Is the Project Timeline and Exit Plan?

• Is the projected timeline conservative?

• What happens if the market shifts?

• Are there multiple exit options (sell, lease, refinance)?

An exit strategy isn’t just about when—it’s about flexibility. Assemble Capital plans multiple exit options into every project and avoids rigid projections.

Question 5: How Is the Capital Stack Structured?

• What percentage is equity vs. debt?

• Are there preferred equity layers?

• Who gets paid first in a downside scenario?

Understanding where you stand in the capital stack is crucial. At Assemble, we build clear, senior-lien-first capital stacks with defined waterfall structures.

Question 6: What Are the Legal Disclaimers and Disclosures?

• Are risks clearly disclosed in the PPM?

• Does the sponsor avoid public investment advice?

A transparent sponsor will be upfront about potential losses. Assemble Capital adheres to SEC regulations and does not issue public investment advice.

Question 7: What Happens If the Market Declines Mid-Project?

• Is the location recession-resistant?

• Does the business model allow for holding or leasing instead of forced sale?

• Are reserves in place?

Assemble focuses on value-add and new construction projects in high-demand LA neighborhoods, building resilience into the deal structure and timeline.

Question 8: What Are the Sponsor’s Incentives?

• Are fees front-loaded?

• Do they co-invest with LPs?

• Is compensation based on profitability?

Aligned incentives matter. The partners at Assemble Capital co-invest in every deal, and profits come only after LPs are paid first.

Question 9: How Liquid Is the Investment?

• Is there a holding period or lock-up?

• Are secondary sales allowed?

Private placements are generally illiquid. Assemble Capital makes this clear in all offering documents and encourages investors to allocate only capital they can afford to tie up.

Question 10: What Is the Downside Scenario?

• What’s the break-even occupancy or sale price?

• What happens if the project sells for less?

Investors should stress-test the deal themselves. Ask the sponsor to share worst-case scenarios. Assemble Capital provides conservative downside modeling in each OM.

Ask First, Invest Later

Before investing, ask every sponsor the tough questions. A good firm will welcome scrutiny. At Assemble Capital, we’re always ready to walk you through the deal—downside included.