One of the hardest parts of alternative investing is what happens when things don’t go as planned.
We hear this situation more than you might think: an investor joins a real estate syndication deal—often encouraged by friends or peers—and after a few years, the sponsor comes back asking for more money. Rents haven’t kept up, expenses have climbed, interest rates are higher, and now the sponsor is making a capital call.
It feels like a crossroads: do you write another check to protect your stake, or do you decline and accept dilution?
What a Capital Call Really Signals
A capital call is a red flag. It means the sponsor’s original assumptions were wrong—about interest rates, cash flow, or management. If you strip away the fact that you already have money invested and simply ask: “Would I invest new money in this deal today, knowing the managers already miscalculated?”—the answer is usually no.
Sponsors will often frame dilution as a subtle threat: “If you don’t invest, your ownership percentage will drop.” But dilution itself is not a reason to commit more money. At its core, a capital call is an opportunity to stop throwing good money after bad.
Evaluating Your Options
There are scenarios where a sponsor with a long, proven track record may eventually turn a deal around. But if the only track record you have is their performance with your current investment—and that performance is already poor—you have little reason to add more risk.
Instead of sending another 30% of your original investment into the same troubled project, you may be better served by redeploying that capital into a new real estate investment that is well-managed, better capitalized, and more carefully structured.
The Diversification Lesson
One of the biggest mistakes we see is investors putting six figures into a single syndication because it feels like “real estate diversification.” In reality, that is concentration risk disguised as an alternative investment. True diversification in private real estate requires multiple properties, managers, and vintages. If you aren’t ready to build that level of diversification, it may be worth rethinking whether this asset class is the right fit at all.
Bottom Line
Capital calls expose the weakness in a deal’s original structure. Sponsors who’ve already miscalculated now need more of your money to keep the investment afloat. That’s rarely a good reason to double down.
It may sting to watch your stake get diluted, but protecting your future capital—and applying more disciplined due diligence next time—is often the smarter move.
This post is based on a recent episode of the Scholar Wealth Podcast. Listen in for more insights.