In other posts, we’ve talked about the work and responsibilities of the General Partner in a real estate syndication.  In summary, the General Partner (GP) is active in a syndication which means their responsibilities include finding potential deals, underwriting, raising capital, closing, managing the asset, and eventually exiting the opportunity normally via sale, just to name a few.

The Limited Partner (LP) is the passive investor and is primarily responsible for a portion of the equity in the project in return for partial ownership in the deal.  The Limited Partner has a few other responsibilities to consider.

Meet and talk to potential GPs to invest with

As an LP investor, it is important to talk to the general partner to make sure this relationship is the right fit.  You’ll want to make sure the communication style and goals are in alignment with your goals and expectations.

Understand your investment goals

A limited partner should understand what their investment goals are in order to evaluate if this is the right fit in their portfolio.  One thing to keep in mind is that real estate syndications are often a 3-7 year hold period where the principal is returned at the end of the hold period.  This is something to keep in mind as investing in syndications is not for cash reserves or an emergency fund.  It is an investment that takes time and is more forward-looking.

Review documents to make sure this is the right investment

Once you understand your investment goals and know that the GP team is the right fit for you, the limited partner should evaluate the investment against their goals.  The investment’s projected returns are likely not a surprise as earlier conversations with the General Partner should already lay the groundwork for what the deal will look like.

There will be a call that reviews the deal with information about the market, business plan, and targeted returns.  This will be a presentation that goes over the Offering Memorandum (OM).  This presentation will be an overview of the deal and plan.  Here the passive investor can ask clarifying questions about the business plan and anything else in the deal.  The Private Placement Memorandum (PPM) outlines more of the legal terms and will end up being the document signed to solidify the contract between LP and GP.  We’ve talked in more detail about things to look for in the post “5 Things to Look for When Evaluating a Real Estate Syndication”.

Equity for project

I already mentioned this earlier, but it deserves its own section.  The ultimate responsibility of a Limited Partner is supplying equity for a portion of ownership of the real estate asset.  This capital is essential in funding and closing on a deal.  In return, the Limited Partner is a partial owner of the asset as outlined in the PPM.

Throughout the project

Throughout the hold period, the Limited Partner does not have to do much!  I suggest reading through the updates from the General Partner team and learning more about the project.  As a limited partner, enjoy the cash flow (if the particular deal has it).  At tax season, keep an eye out for the K1 tax form which outlines gains and potential depreciation (losses on paper that help reduce your taxable burden).

Conclusion

The limited partner does not have a lot of responsibilities.  The most important thing is to understand if this is the right type of investment and if the particular investment is a good fit at the time.

If you are looking to learn more about investing in a real estate syndication, schedule an introduction call with us here.