Have you ever found yourself in this situation?
You invest in a real estate deal that looks solid on paper. The sponsor is experienced, the numbers make sense, and the location is promising. Everything seems to line up. Then… something shifts.
Cash flow slows down or disappears altogether. Distributions are paused. You get a long investor update that ends with a capital call request.
What now?
That’s what I want to talk about in this post. Because if you invest long enough, you’ll eventually find yourself in a deal that underperforms. And while it’s never fun, it doesn’t have to derail your progress or shake your confidence.
Here’s how to think about it, how to respond, and how to come out a stronger investor on the other side.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial, legal, or investment advice. Any investment involves risk, and you should consult your financial advisor, attorney, or CPA before making any investment decisions. Past performance is not indicative of future results. The author and associated entities disclaim any liability for loss incurred as a result of the use of this material or its content.
You’re Not Alone in This
Real estate is cyclical. We’re in a tough part of the cycle right now with higher interest rates, inflation, and rising operational costs. Even seasoned investors and large institutions are feeling it.
I’ve had deals that didn’t perform as expected. Some seem more like things the sponsor could’ve controlled but there are also some things that were out of their control.
One in particular had solid projections and was set up for a refinance, but the sponsor happened to be a smaller investor in another deal that didn’t go well and that derailed the refinance.
I’ve had others where it seemed like they underwrote for one or two challenges but they didn’t expect five at the same time. They lost the property altogether on that one.
These kinds of experiences stings. But it also teaches you how to be a better, more resilient investor. And that’s what this game is all about.
Step 1: Revisit the Investment Thesis
Take a step back and ask yourself:
- Was this deal aligned with your personal investment goals?
- Was it designed to produce steady cash flow, or was it more speculative with a potential big upside?
- Did you fully understand the risks going in?
This is a great time to look at your own expectations and whether the opportunity really matched your risk tolerance.
Step 2: Evaluate the Communication
When things aren’t going well, communication from the sponsor matters more than ever.
Are they sending consistent updates? Are they transparent about the challenges and the plan going forward? Or are they silent or overly vague?
The best operators don’t disappear when things get rough. They over-communicate, take ownership, and present a plan. If you’re seeing that kind of leadership, that’s a good sign even in a tough situation.
Step 3: Talk to Your CPA
This is the step most people overlook.
If there’s a real chance the investment could result in a partial or total loss, talk to your CPA now—not later. There may be ways to use that loss strategically for your taxes.
Your CPA can help you:
- Understand if you can claim a passive loss this year
- See how it might offset capital gains or reduce future tax bills
- Plan around depreciation recapture if the property is sold at a loss
It’s not about giving up. It’s about being smart with every part of your investment experience, even the losses.
Step 4: Zoom Out
Ask yourself:
- Is this a short-term challenge or a long-term issue?
- Is the property in a solid market but struggling with execution?
- Or are there deeper issues like overleveraging or poor management?
Also, look at your portfolio. Are you too concentrated in this type of deal or asset class? Did you put too much capital into one operator?
Diversification exists for a reason. One deal should never put your whole strategy at risk.
Step 5: What Can You Learn?
Every deal teaches you something. The underperforming ones usually teach you the most.
Some key takeaways that have helped me and many in our community:
- Vet the team just as much as the deal itself
- Understand the business plan, not just the projected returns
- Stress test the assumptions. Ask what happens if interest rates go up, or occupancy drops
- Never invest an amount that would keep you up at night if things don’t go as planned
These lessons stick with you. They sharpen your judgment. And they help you make better decisions next time.
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The Mindset Shift
I’ll say this again because it’s important: even a bad deal can lead to good outcomes—if you use it as a learning opportunity.
Sometimes you win. Sometimes you learn.
I’ve learned more from my challenging deals than I ever did from the easy wins. If you’re dealing with one now, I want you to know you’re not alone. And it doesn’t mean you’re a bad investor. It means you’re a real one.
You Have a Community
If you’re in a deal that isn’t going well, I’d love to hear from you. Not to offer advice or judgment—but to support you and maybe even use it to help others in the community.
Also, if you’re not already part of our Passive Income MD newsletter or community, consider joining. We’ve built a space where physicians and professionals can learn, invest smarter, and navigate these exact situations together.
Because let’s face it… no one teaches us this in medical school. But that doesn’t mean we can’t learn and grow into the kind of investors who thrive over the long run.
Were these helpful in any way? Make sure to sign up for the newsletter and join the Passive Income Docs Facebook Group for more physician-tailored content.
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
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