an LP varies depending on the partnership structure and the partners’ investment; in general, they have significantly reduced liability exposure and negligible to no involvement in daily operations. They make money by getting a return on the capital they invested. LPs choose to invest this way because they may have limited time, they lack local real estate knowledge, or it is their preferred income strategy. Maybe you’re in the real estate business and want to do what you do best! This is where the active investor (often called the general partner, or GP) enters the scene. As a GP, you provide value by sourcing deals and leveraging your experience, network of connections, local knowledge, and good old sweat equity. Although you can expect to invest some money, you are rewarded with disproportion- ate gains because you orchestrated ACTIVE: GENERAL PARTNER the investment. Plenty of people have money; very few people can structure profitable real estate ventures. Valuable investment opportunities are a natural magnet for money.
A partnership can give you the leverage, access, or resources you need to acquire commercial real estate that would otherwise be outside of your reach.”
partner, you must share similar core values or be willing to be held accountable to an agreed-upon standard of operation. Conduct due diligence on your potential partner’s character. Be sure that you trust them—your money, time, reputation, and future are tied up with theirs. You don’t want to align yourself or your business with a partner who is an inept operator. You need a partner with clarity and structure. A lack of structure is only the first indication of existing problems. It doesn’t take a lot of imagination to connect the dots: If there is no discernible business structure, there isn’t going to be more as you dig. Lost opportunities. Lost revenue. Wasted dollars. Wasted time. Save yourself the danger and start asking questions, including these: • What is your existing business structure (employees, contractors, etc.)? • What are the three to five core operating systems or processes that run your business? NO. 3 Structure
A partnership can give you the leverage, access, or resources you need to acquire commercial real estate that would otherwise be outside of your reach. Keep in mind that it is critical to establish a partnership exclusively with other high-caliber investors. Here are a few helpful areas to consider when forming a real estate partnership: NO. 1 Complement You can’t build much with two nails and no hammer. You need one of each. In a potential partner, you are not looking for someone who offers the same skills or has the same needs as you. There is an old saying that “When two men always agree, one of them is unnecessary.” A successful partnership is about finding a synergistic solution to compound your mutual benefit through the leverage of your com- bined strengths and connections. Together, your needs and skills complement each other to maximize your opportunity costs.
Commercial real estate is commonly owned under the
entity structures of a corporation (C Corp), limited liability company (LLC), limited liability partnership (LLP), or S-corporation (although not commonly). The remainder of this article focuses on the role of the active investor element of a partnership. Although the responsibilities of the GP will vary, they are largely responsible for key project decisions and daily operations. Active participants divvy up roles and responsibilities among the members based on experience, skill, and workload.
NO. 2 Core Values
• How would the partnership integrate with your existing business? What are your business goals for this year—and the next 3-5 years?
Can you imagine onboarding a new employee without first ensuring they match your company’s core values and culture? With any potential
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