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Some of the most successful real estate investors have built their wealth by leveraging other investors to partner with on deals. A partnership can open up several new opportunities that may not otherwise be available. Real estate limited partnerships are one way that investors can take advantage of these opportunities.

A real estate limited partnership (RELP) is a real estate investment where multiple investors pool their money to purchase or develop real estate. The RELP has a general partner who manages the acquisition and the liability, whereas limited partners who are passive investors do not share in the liability. A real estate limited partnership is a popular method for developing and investing in larger projects. Multiple investors can combine their resources to complete a deal they may not afford or want to manage on their own.

A real estate investor with management experience that secures great investment properties but has limited funds can partner with other investors with capital. These investors may not have the management experience or want to invest in a deal where they would have to worry about the day-to-day operations.

Real estate limited partnerships are common structures for this type of syndication. It makes good sense and is a proven operational structure.

How is a real estate limited partnership structured?

Real estate limited partnerships are structured based on a partnership agreement. This agreement can be quite different from one deal to the next. However, these agreements share the same basic format, giving them limited partnership status.

A RELP has two types of partners, a general partner, and limited partners. Each type of partner has equity in the deal, but the contribution, responsibilities, and liabilities are different between the two. The investment returns are also distributed differently between the two in most cases.

Benefits of a real estate limited partnership

There are many benefits to a limited partnership for real estate investors as both the general partner and the limited partners.

The benefits to limited partners include:

  • Liability is limited to the amount invested.
  • Passive investment requires no investor involvement.
  • Real estate tax benefits are similar to outright ownership.
  • Pass-through entity.

There may be additional benefits to investing in a partnership as a limited partner, depending on the exact terms of the partnership agreement and your own situation.

 

To get started, contact our team at Colony Hills Investment for more information.