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The Top 3 Reasons to Consider Private Equity Real Estate

Title: Top 3 Reasons to Consider Real Estate Limited Partnerships

This past weekend I found myself celebrating Father’s Day in the backyard of my childhood home (socially distanced). As my family sat on the deck, we marveled at our home and all it has become. The conversation then changed to how the house has risen significantly in value over the 20 odd years the family has owned it.

My father, always one to openly share his years of wisdom, mentions if he had bought a few more properties over the years, he would be “laughing” right now. He explained that the combination of income and growth in property value would have had him in a better position as he approaches retirement.

Why Real Estate Limited Partnerships?

During my career in the investment industry, I have seen the benefits of private direct real estate investment firsthand from working with hundreds of successful entrepreneurs, executives, and relentless savers. I have seen the important role this form of investment has had in creating and managing wealth for individuals.

What is interesting is that these same individuals did not actively purse and acquire private real estate assets themselves. They did not flip a house or buy a condo to rent out. Instead they got access through Limited Partnership.

What is a Limited Partnership?

A real estate limited partnership is a legal structure in which a group of investors pool their capital together with the guidance of professional management to acquire and own one or more real estate assets. Investors in the Limited Partnership are called Limited Partners and the professional managers are called the General Partner. The General Partner is responsible for handling everything including acquisition, financing, management, coordinating and finding investors.

In my opinion there are three reasons why individuals prefer this way of real estate investing instead of doing it on their own.

1. Exposure to Better Assets

Limited Partners can leverage the power of numbers. With multiple individuals pooling capital together, these groups of investors can purchase a property typically beyond the reach of any one individual. For example, someone looking for an investment property may only be able to afford a duplex or triplex, where as a group they can purchase any number of units… 20, 40, 60 etc. This provides greater stability of income, opportunity to purchase better quality assets and reduces risk.

2. Turn-Key experience

If you know anyone who have purchased an investment property themselves to rent out, I am sure they will tell you it is a lot of work. Dealing with tenants, collecting the rents, and making upgrades (sometimes willingly and sometimes not). Limited Partnerships offer a professionally managed alternative that is completely hands-off.

3. Limited Liability

Finally, Limited Partnerships provide Limited Partners with limited liability up to the amount of their initial investment. The importance of this benefit is often overlooked. What is means is that if someone slips and falls on the property and sues, your liability is limited to your initial capital investment. If the property were owned personally, then you could be sued personally. In addition, Limited Partners are not responsible for guaranteeing any of the debts on the property, this is the responsibility of the General Partner.

Reflecting on the conversation with my father, I wonder if he would have invested different in his younger years had he known that Limited Partnerships were an option for him. For me, I have come to realize that the path to becoming wealthy is to acquire investments that create cash flow now and in the future. Real estate fits this description well and my vehicle of choice to pursue this are Limited Partnerships.

Have you invested in Limited Partnerships before? What was your biggest personal benefit to investing this way? Comment below!

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