The Importance of Real Estate Limited Partnerships | Colony Hills Capital (2024)

Name any successful investor throughout history and chances are they’ve invested in real estate.

It’s no surprise why. Real estate has proven to be a great way to diversify your portfolio and build equity over time. How you invest in real estate is another story though. You could buy and manage a property yourself, but that’s not the only option available to you.

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. In this article we’ll show you what a real estate limited partnership is, its benefits, and how to invest in one to diversify your portfolio and investment strategy.

What is a real estate limited partnership?

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 are protected from any 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 seasoned 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 investors limited partnership status and access to the potential income.

These agreements typically include the following:

• Names of the investors
• Amount invested by each member
• Distribution structure
• Effective date for the partnership
• Percent ownership for each member

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.

Let’s examine these roles in more depth.

General partner

The general partner has a direct role in the investment, often managing the day-to-day operations. Due to this, general partners often retain decision-making authority on the investment.

Limited partners

Limited partners take a less active role. Limited partners receive dividend distributions along with pass-through income annually which makes up part of their return.

At its core, a RELP is simply a group of individuals coming together to purchase a property and benefitting from its management and sale according to the terms of the operating agreement.

What do real estate limited partnerships invest in

Real estate limited partnerships are diverse in what they can invest in, though most focus on commercial real estate due to the ability to generate large returns on a well-managed property.

These commercial properties could be multifamily residential properties (which Colony Hills Capital specializes in) or industrial/storage properties.

Benefits of a real estate limited partnership

There are many benefits to a limited partnership for real estate investors.

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.
• Potential current income in the form of dividend distributions.
• 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.

As you can see, investing in a RELP brings many benefits along with the inherent advantages to investing in real estate (minus the downsides that come with having to actively manage a property, such as property maintenance, tenant’s not paying rent, and liability issues).

Ready to take your first step to invest in real estate?

Ready to take your first step towards investing in real estate? At Colony Hills Capital we are experts in the acquisition, ownership, and management of property in growing markets around the country. While we cannot guarantee results, we always aim to provide consistent and above average passive income to our investors. Past performance is no guarantee of future results. Interested in investing?

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