People who are interested in pooling their resources with others to make real estate investments they couldn’t handle on their own have several types of real estate investment groups (REIGs) to choose from. A popular one is a real estate limited partnership (RELP).
A RELP typically consists of one or more general partners who have full liability for the RELP’s investment in a project. A general partner can be a real estate development firm, a property manager or even a corporation that takes primary responsibility for the project and the day-to-day decisions around it.
The limited partners are typically outside investors who have only a limited say in the project – taking a “hands-off” approach. Their role is to provide the money needed to make the project possible, in exchange for what they hope will be a healthy return on their investment.
The importance of the RELP partnership agreement
It should be noted, however, that some RELPs are more collaborative than others. The partnership agreement for the RELP determines how much of a role the various partners will be able to play in choosing and managing the real estate projects for investments. It should also detail things like the minimum investment required of each limited partner, how dividend distributions are made, voting rights and other provisions. Most RELPs have a predetermined end date.
If you’re forming a RELP or considering joining one, it’s wise to seek legal guidance. Certainly, when developing your partnership agreement, you need experienced help. While no real estate investment is a sure thing, it’s essential to weigh the potential risks and rewards and understand the tax implications for you.