Investing in real estate can be lucrative for many investors. For some, knowing that they’re investing in a physical structure, or piece of land, can provide a tangible reassurance of where their capital is vested. As with all investments, there’s always an associated level of risk. However, real estate ventures have proven to be the investment preference of many throughout time. The real estate market has its predictable cycle of highs and lows, which is affected by the economy, unlike the stock market, which can be volatile and unpredictable at a moment’s notice. With the real estate market gaining traction once again, investing in real estate isn’t only limited to a direct purchase. A limited partnership with an experienced real estate investment company, such as Jakob Pek Fund, could be an attractive option for those looking to invest without the hassle of construction, maintenance, or rent collection.
If you’re not already familiar with the concept of a Limited Partnership, it’s the legal term used to describe a partnership of one or more general and limited partners for the purpose of a business venture. General partners are responsible for managing the everyday operations of the business, while limited partners are solely responsible for capital invested into the partnership. Unlike the general partners, limited partners have limited liability, which means that they are not responsible for the debts of the company. It is ideal for limited partners to do their due diligence on who they are going into business with, since they will be passive, rather than active investors. Limited partnerships are more commonly used in real estate investments, but are also used across different enterprises.
One of the great aspects of entering into a Limited Partnership agreement for real estate, is the ability to invest funds and let the general partner manage the everyday tasks associated with the operation. As a passive investor, your responsibility is to invest for a specific period of time and anticipate returns. The concept is similar to that of a stockholder who’s invested in a public company. For those looking to invest in real estate, but cannot afford the time, a limited partnership is a considerable option.
In addition, to limited liability and duties, added tax benefits including passing through tax losses, which investors can use to offset taxable gains on other passive investments, make limited partnerships an appealing choice. Because limited partnerships are flow-through entities, any profit distributed to the limited partners is untaxed, as opposed to dividends received by corporation stockholders, in which case are double-taxed.
Not everyone meets the income and asset thresholds to invest in a limited partnership. Nonprofits and companies with specific asset requirements can invest. However, the SEC requires investors of investment companies not registered with the SEC, to be “accredited” in order to legally invest in a limited partnerships. The list of what qualifies as “accredited” can be found here, but for someone looking to make significant returns through a limited partnership in real estate, you will need $1 million in assets (excluding your primary residence) and steady annual income of $200,000.00. Married couples can also jointly invest with the exception of $300,000.00 joint annual income.