By Lee Sherman
High net worth investors have many options for investing in real estate including private equity funds, real estate investment trusts (REITS) real estate mutual funds, crowdfunding, and self-managed investments. But there is another alternative that opens up new opportunities and provides a compelling reason not to go it alone.
What is a real estate limited partnership?
A real estate limited partnership (RELP) is a real estate investment where multiple investors pool their money and resources to purchase or develop real estate. A general partner (GP) manages the investment for the limited partners and assumes full liability while the other investors remain passive investors with little involvement in the day-to-day operations of the fund. Under this structure Individual investors who lack the funds or experience can partner with other investors and get in on deals they otherwise would not have access to.
The most important consideration for a GP is that person’s credit worthiness since they will be signing on to the loan and are ultimately responsible for paying it back. The lender will need to have the assurance that the GP will be able to pay it back. In general, you’ll want to make sure that you’ve chosen a GP who can bring something to the partnership that you and the other investors lack. The beauty of a RELP is that it doesn’t really matter if you and the other partners have never purchased a single property. That’s one reason why they are so attractive. You can get in on the ground floor (so to speak) of deals you wouldn’t’t normally have access to (even with a high credit rating and significant net worth). The GP should not only be fiscally responsible, honest, and on the same page as the limited partners when it comes to the goals for the RELP, they should also have a great deal of experience in buying property and access to deals, connections, and a network of buyers, sellers, and investors that can be called upon.
In some cases, the GP will also be the property manager and will be responsible for such mundane day-to-day operations as general upkeep on the property, repairs, collecting rent, and paying taxes. Or the RELP can outsource this to a property manager who will receive a salary. Either way, you don’t have to worry about it.
As a limited partner, your only responsibility is your contribution to the partnership for which you hope to receive a return on your investment. Any profits are distributed to the limited partners on an ongoing basis. Depending on what type of property it is, the profits can come from rent or at a later date when the property is sold.
A RELP provides several benefits over going it alone. You’ll have access to deals that would otherwise be out of reach. You won’t have to deal with the headaches that come with managing a property yourself. And your liability will be limited to the amount you have invested.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
