The letter shows up in year three. The deck promised steady distributions and a clean exit around year five. The letter says the business plan is “extending,” distributions are “paused to preserve capital,” and your next update will come next quarter. You read it twice. Then you open the operating agreement you signed and go looking for the page that says when you can get out.
That scramble is the real cost of a missed projection, and it’s why real estate note investing deserves a hard look from anyone who has been burned. The money is stuck, and you’re also learning, late, what you actually agreed to. If you’ve been there with a syndication, you know the feeling. If you haven’t, you probably know someone who has.
The deck was a forecast. You signed the document.
Every pro forma is somebody’s best guess about rents, rehab costs, cap rates, and the day a buyer shows up. Some of those guesses are honest and some are salesmanship. Even the honest ones assume nothing goes sideways for five or seven years. Something always goes sideways.
The projection isn’t a lie, necessarily. It’s just not a promise. The operating agreement is the promise, and it usually says the sponsor decides when distributions pause, when the hold extends, and when anyone gets liquidity. You’re a passenger on a schedule somebody else keeps.
I’ve watched smart, careful investors get caught by this, including people who read every page of the offering memorandum. They did their homework on the market and the sponsor’s track record. They just never asked the boring question: what do I get to know on day one that doesn’t depend on anyone’s forecast?
What you can know on day one
Here’s the lesson I’d hand any investor sizing up a private deal. Sort everything in the pitch into two piles. In the first pile is everything that has to go right: occupancy, exit pricing, construction timelines, market momentum. In the second is everything written down and fixed: where you sit in the capital stack, what you’re paid and when, how long you’re in, and how you get out.
Real estate note investing lives mostly in the second pile. A lender holds a claim on the property. The payment schedule is a term, not a hope. The hold and the notice period are printed in the document. You can read all of it before you wire a dollar, and none of it changes because a contractor ran late.
That doesn’t make a lender’s position free of risk. Nothing is. It makes it readable, and readable is a big deal when the alternative is a spreadsheet full of assumptions.
How the Fund puts the terms on the table
I built LGL Co-Lending Fund 1, LLC around that idea. The Fund is Iowa-focused and operator-run out of West Des Moines. It lends against real estate with a first lien on the collateral of every loan, and it has funded over 200 loans, with over $25 million lent. I’m not citing that to impress you. It’s here because a lender’s track record is a fact you can ask about, where a pro forma is a promise about the future.
The terms are plain. Positions from $100,000 to $499,999 earn 10% annually, and positions of $500,000 and above earn 11% annually, both paid quarterly. Zero fees come out of the investor’s return. The minimum is $100,000. There is a one-year minimum hold, and after that, a written notice period: 90 days for the smaller tier and six months for $500,000 and above.
Read that and you know when you’re locked in, when you can ask for your capital back, and how long the request takes. That’s what I mean by terms you can check on day one. No deck required.
What to put in front of any deal, mine included
Before you fund anything, run four plain questions. Where do I sit in the capital stack? What are the hold and the notice terms, in writing? What comes out of my return before I see it? Who is the operator when things get messy, and have they actually been through messy?
Write the answers down before you talk to anyone’s sales team. If a sponsor can’t answer those cleanly, the projection doesn’t matter. If they can, you’ve already learned more than any glossy page could tell you.
Want to see the Fund’s disclosed terms laid out plainly, with nothing buried behind a forecast? Watch the short video here: https://littleguyloans.com/investor-learn-more/. Verified accredited investors only.
FAQ
Why do syndication projections miss so often?
A pro forma bundles many assumptions about rents, costs, timelines, and exit pricing. When one of them slips, the schedule moves, and the operating agreement usually gives the sponsor discretion over distributions and the hold period.
What is real estate note investing?
It means holding a claim secured by real estate rather than owning the building. The payment schedule, hold period, and notice terms are written into the documents, so more of the deal is knowable before you invest.
What are the hold and redemption terms for the Fund?
There is a one-year minimum hold from the date funds are received. After that, redemption requires written notice: 90 days for positions of $100,000 to $499,999 and six months for positions of $500,000 and above.
Who can invest in the Fund?
Verified accredited investors only. The Fund is offered under Reg D 506(c), and third-party verification is required before funds are accepted.
Past performance does not guarantee future results. Returns are not guaranteed. LGL Co-Lending Fund 1, LLC is offered under Reg D 506(c) to verified accredited investors only.
