A limited partnership encapsulates two facets of the business entity—general and limited partner. This influences management and investment in the market.
General partners take full responsibility and make unquestionable decisions in business operations. Conversely, the limited partner brings the finances to the table. Their commitment is limited to the investment they provide to the business entity.
How Do These Partnership Formations Work?
Under the real estate investment group (REIG), these partnership formations take advantage of opportunities in the ever-growing property market. If you decide to use this approach, you must understand what it entails to constitute a limited partnership. In addition, you must budget for the entity’s registration in your country.
Besides company registration, you must decide which side of the partnership you’d want. Is it the general partner (GP) or limited partner? Also, ask yourself, can I be my own registered agent for an LLC?
The underlying task of a registered agent can be challenging if you’re only looking to invest in the property market. This article will examine five reasons to use an LLC partnership for real estate investments.
1. Leverage General Partners’ Skills And Expertise
Investing in the property market is a huge undertaking when you decide to go at it alone. You must have the finances to fund the projects, manage the portfolio, and ensure you get projected returns.
When you incorporate a limited partnership, you can leverage the skills and expertise of acquiring and running the business. The general partner brings the brains, research, and sourcing of the funds for any future real estate project.
Here’s what a general partner can handle on behalf of a real estate entity:
- Finding property investment opportunities
- Raising capital
- Property management
- Making all the decisions of the partnership
- Property sales
However, getting an experienced general partner who understands the real estate market is crucial. You want to be sure of returns from your investment. As a limited partner, you hand off the business’s day-to-day operations to the general partner.
2. Limited Investment Risks
When you invest in real estate through a limited partnership, the amount of money you provide for the business is the only exposure to risk. This is true when you look at the formation of the entity. One can have a business idea but lack the finances to support investment in the property market.
The general partner will raise all the capital and ensure they fulfil the promise of buying into the real estate. If the market takes a downturn, the managing partner will be liable for the decision to invest in a given property.
3. Ease In Property Transfer
Selling off real estate property can be challenging if you go solo. You must look for buyers and pursue them to purchase the property on sale. A limited partnership will save you the headache of running a marketing campaign when selling the property. The underlying paperwork during the transfer is also tedious.
As a financier of the real estate venture, you’ll wait for the general partner to distribute the proceeds of any property sale. However, there are underlying taxation laws that befall a limited partnership. Also, cashing out of the limited partnership becomes impossible because a contract binds it.
4. Easy Taxation Structure
Limited partnerships have a pass-through for taxation. It means the business entity has no tax obligations. The partners, on the other hand, must declare their income resulting from real estate sales.
It follows a simple tax declaration structure to ensure all the investors complain. For instance, America’s Internal Revenue Service (IRS) expects a limited partnership to file Form 1065. It shows a detailed distribution of profits and losses for all partners through a K-1 form. The partners will indicate their K-1 transactions when filing annual returns with IRS.
5. Passive Income Opportunity
If you’re looking for passive income through real estate ventures, a limited partnership can be one of the many ways to leverage the property market. This approach enables you to earn from big real estate projects like malls.
The association has a lifespan, and the partners receive dividends as investment returns. It ensures that you recover the principal amount you invested at the beginning.
Investing in the property market needs an analytical review of the underlying opportunities. The general partner might present a perfect idea without the skills to implement it. It’s crucial also to research the best approach to the property market to safeguard your portfolio.