Source: Think Realty —
A real estate partnership is no different from any other partnership in its basic purpose: mutual benefit through collaboration to achieve more together than can be accomplished alone. Steve Jobs distilled the benefit of collaboration this way: “Great things in business are never done by one person; they’re done by a team of people.”
When undertaken with proper consideration and structure, a real estate partnership can be one of the most powerful investment tools at your disposal. Most often, investors use them for the acquisition of commercial real estate because of the large amount of capital and expertise required.
The slew of technical terms used to describe partnerships may seem intimidating: S-Corps, sponsors and syndications, limited partners and general partners, LLCs and LLPs, waterfalls and preferred return (pref).
What do these terms mean? And, more important, what do they mean for you?
Let’s start with a basic distinction.
Do you want to be an active or a passive investor?
Passive real estate investors participate by bringing money to a deal. They might do so as part of a syndication (money pooled from many investors for the purchase of a property) or as a Limited Partner (LP). The liability of an LP varies depending on the partnership structure and the partners’ investment; in general, they have significantly reduced liability exposure and negligible to no involvement in daily operations. They make money by getting a return on the capital they invested. LPs choose to invest this way because they may have limited time, they lack local real estate knowledge, or it is their preferred income strategy.
