A real estate limited partnership (RLPA) must begin when an experienced real estate specialist initiates and oversees a specific commercial real estate investment. He or she is known as the primary or general partner and is responsible for the day to day management of the real estate. One or more people or companies will then be allowed to invest in the project.
The new investors will then own part of the real estate and receive a portion of the profit, without being asked to provide significant amounts of time to the property.
Limiting The Role Of A Real Estate Limited Partner
Essentially, stockholders in a traditional investment play a similar role to that of a limited partner in real estate. One important difference to consider is that by investing in real estate, a tangible product is seen. With stocks in a company that can be almost anywhere in the world, there is no "real" product that can be seen or used.
Another interesting aspect of this type of financial partnership is that a limited partner will only bear partial liability. If a financial disaster or downturn were to occur, a limited partner will only be liable for the amount of their capital contributions.
Qualifying For Investing In A Real Estate Limited Partnership
It is a good idea to note that in general, a real estate limited partnership is only appropriate for individuals with a significant income and net worth. It is not unusual for a limited partner to need at least a million dollars of personal net worth and a yearly income of at least 200,000 dollars. The minimum investment is 2,000 dollars.
Those numbers are approximate and are often verified in order for the investor to become accredited, which is required by many initiating partners in this type of transaction. The dollar amounts involved make it clear that a real estate limited partnership is best for the long-term investor. Selling or transferring your part of the company can be difficult and if obtained, may result in a financial loss of the limited partner.
Tax Benefits Of A Real Estate Limited Partnership
One aspect of an RELP is the financial losses that often occur during the first few years. Specifically, the expenses related to the investment are typically large and may not be entirely offset by profits.
However, this is actually a good thing for many investors. The losses can be used by investors to minimize the amount due for capital gains taxes on other investments. Most other investments do not have that option. Therefore, when waiting to make a profit, there are still financial benefits that provide relief for that year.
In conclusion, a real estate limited partnership is a complex investment with positive and negative aspects for the investor. It is not a good choice for the day trader and is best for someone who is making a long-term plan for their financial future.
Contact a company like Jakob Pek Fund to learn more.