General Partner vs. Limited Partner
Before taking part in a Real-Estate Syndication, it is important to know what role you want to play as an investor. Are you more on the active or passive side? If you choose to be an active investor in a syndication then you would be considered a General Partner (GP) and if you decide that the passive route is for you then you would be a Limited Partner (LP). Now let’s dive into the roles of a GP and LP. General Partner (GP): You may hear a few different names thrown around when the topic of an active investor is discussed. As already mentioned, an active investor in syndications is known as a General Partner (GP) but some other titles in the industry would be a syndicator or sponsor. Despite the different names they all have the same responsibility and hold unlimited liability. A GP’s job is to manage the entire deal from start to finish. They are the ones sourcing the deals, negotiating, underwriting, hiring property management/staff, executing the business plan, raising capital and much more. Overall, the GPs are fully responsible for operating the business in an efficient manner that is profitable for the investors. Limited Partner (LP): The limited partners are also known as the passive investors in a syndication. These are the folks that provide a portion of the equity investment to help fund the deal and in return receive portions of the cash flow. The exciting aspect of being an LP is that the investment is completely passive, and the LPs only have limited liability to the extent of their share of ownership. The common equity structure for the LP is usually 75% - 80% while the GP gets the remaining 20% to 25%. The GP receives that piece of equity due to the fact that they are the ones operating the entire business. Again, they are sourcing the deal, managing the asset, and ensuring that the business plan is executed. Conclusion: If you are thinking of investing in real estate, I think it is incredibly important to contemplate what kind of investor you are. If you are someone who works a W-2 job and don’t have time to pursue the active investing path, then being an LP in a Real-Estate Syndication might just be the perfect fit. If you want to be managing a business and operate the day to day tasks that come with real estate, then I would advise looking at becoming a GP. Whatever direction you choose, the great thing is that either way you will be invested in income producing assets that will greatly boost your net worth and provide tax-free cash flow!