“Everyone has a plan until they get punched in the mouth.”
— Mike Tyson
If you’re serious about building passive income, eventually you run into the same problem.
You have to trust someone else with your money.
And that’s hard.
I’ve struggled with this myself.
No one cares about your money the way you do.
Yet if you want true passive income—the kind where you’re not hustling every day—you have to learn how to evaluate people, not just deals.
That’s what today is about.
I’m going to walk you through the single question that tells you whether a sponsor is worth trusting.
And before we get there, we need to talk about what actually matters when you’re vetting an operator.
1. Alignment: Are They Really in This With You?
One of the first things investors ask is, “How much money does the sponsor have in the deal?”
That’s a good question—but it’s incomplete.
Alignment is bigger than just a dollar amount.
Yes, co-investing matters.
Sponsors often put in 2%, 5%, or even 10% of the deal.
Ideally, they have real skin in the game.
But here’s the reality most people don’t talk about.
Even high-net-worth operators don’t always have endless liquidity.
I know people worth $5–10 million who have very little cash.
Their wealth is tied up in deals.
That doesn’t automatically make them bad sponsors.
What does matter is how the incentives are structured.
Are investors paid first?
Is there a preferred return?
Do operators only make real money if the deal performs?
This is why I like syndication structures where interests are clearly aligned.
If the deal wins, everyone wins.
If it doesn’t, the operator feels the pain too.
There was a study of Wall Street fund managers overseeing $100M+ funds that found fewer than half had even a single dollar invested in their own funds.
They weren’t eating their own cooking.
That should concern you.
Alignment isn’t about what someone says.
It’s about what they actually do.
2. Communication: How Do They Show Up When You’re Not in the Room?
You can have a great deal on paper and still have a terrible experience as an investor.
Why?
Because communication breaks down.
This matters more than people realize.
As a passive investor, you’re not in control.
You’re trusting someone else to manage the asset and keep you informed.
One of the best things you can ask for is a sample investor report.
Look at the KPIs they track.
Look at how clearly things are explained.
Then pay attention to responsiveness.
Do they reply within 24 hours?
Do they acknowledge questions even if the full answer takes time?
In our business, we aim to respond within one business day.
Even if the answer is simply, “We got your message and we’re working on it.”
Silence creates anxiety.
Bad communication can ruin even a strong-performing deal.
And when you need something critical—like a tax document—you don’t want to be chasing people down.
How someone communicates before you invest is usually the best they’ll ever be.
3. The Question That Reveals Everything
This is the part most investors skip.
They only ask about success stories.
That’s a mistake.
Here’s the question I want you to ask every sponsor:
“Tell me about an ugly deal you’ve done.”
Not a deal that was mildly inconvenient.
Not one that was a month behind schedule.
I mean a deal that got punched in the mouth.
Something went wrong.
The market shifted.
Debt became a problem.
A capital call was needed.
Operations fell apart.
Then listen very carefully.
How did they respond?
Did they increase communication?
Did they take responsibility?
Did they stay calm and transparent with investors?
Or do they gloss over it and minimize the pain?
If someone has been investing long enough and can’t point to a truly ugly deal, that’s a red flag.
You don’t really know what someone is made of until things don’t go according to plan.
Pressure reveals character.
This question tells you more about integrity, experience, and leadership than any pro forma ever will.
That’s why it’s the most important question you can ask.
If this helped you think differently about how you vet deals, I’d love to hear from you.
Drop a comment below and share how you evaluate sponsors.
If you know someone looking to build passive income, send this to them.
Before you go, make sure to grab our special report on inflation investing, where we break down strategies designed to protect and grow wealth in today’s environment.
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And don’t forget to check out my bestselling book on Amazon.
Disclaimer: I am not your investment advisor.
This is for educational purposes only.
I am not giving specific advice on what you can do.
I am simply giving my opinions.
