In a real estate syndication, a group of people pool their resources to acquire, manage, possibly renovate, and sell a real estate asset in hopes of generating profit. While there are many roles to explore in a real estate syndication, the primary distinction is between limited and general partners. 

 

General partners are responsible for properly managing the asset, which includes negotiating terms, hiring property management, overseeing construction, evaluating the market, and meeting business plan milestones throughout the time the property is owned. There’s something enticing about the coordination, logistics, and being directly involved in the day-to-day management of a large property, but the job comes with significant responsibility as well. 

 

Limited partners, meanwhile, contribute a set amount of capital (maybe $50,000 – $150,000) to help fund the acquisition and business plan milestones while carrying minimal liability and responsibility throughout the deal. Basically, all limited partners need to do is throw their money in, go on with their lives, and collect distributions along the way. Sounds nice, right?

 

So which role is better? 

 

I’ll tell you what, one role or the other might be best for you, but only you can make that choice. So, in this article, I’ll explain what it takes to be successful in each role, discuss some of the responsibilities the general and limited partners carry, and tell you which is my favorite. Maybe, with all that detail, you can give each role a shot and tell me which is better based on your experience!

Is It Best To Be A Limited Partner In A Real Estate Syndication?

 

As a passive, limited investor, you get to invest your capital and then sit back and collect the returns. But did you know there’s a little more to it? 

 

Sure, you won’t be responsible for managing the acquisition or any of the day-to-day activities at the asset’s location because you likely don’t have the time, desire, expertise, or patience to do so. Instead, you have an obligation to yourself to perform due diligence upfront. 

 

You won’t be doing Eeny Meenie Miney Mo to pick an investment property, will you? Of course not! 

 

So, you have a responsibility to yourself and your financial future to research and select a commercial investment market, an asset class, and decide whether you’d like to invest in a value-add syndication deal or not. You’ll want to be clear on how much money you have to comfortably invest, where that money is coming from, and how long you’re comfortable with it being inaccessible. 

 

From there, you’ll discover whether you qualify as an accredited or sophisticated investor, learn about potential structures available in real estate syndication deals, and explore metrics like cap rates. 

 

As you begin to look at open opportunities, you can ask the general partners about their plans for a cost segregation study (useful if you seek tax benefits), find out their risk mitigation plans, and you can examine the projected returns published in the investment summary. 

 

Five years and a $50,000 (or more) commitment aren’t to be taken lightly, and it’s entirely up to you to make sure you find and invest in an opportunity that checks all your boxes toward your investment goals. Of course, you already know that your limited partner status gives you a license to chill once invested, but you definitely want to have done your part at the beginning so you can chill with confidence. 

What Does It Take To Be A Great General Partner In A Real Estate Syndication?

 

On the flip side, a general partner has a fiduciary duty to execute the business plan, contribute their skills and expertise, and make decisions in the best interest of all investors and tenants involved. That’s a lot of pressure!

 

As a general partner, you’re one contributing member of the sponsor team. So while you don’t personally have to know how to do all 51 responsibilities of the general partnership, you’re going to determine which roles and tasks you can execute on behalf of the team. 

 

Some of these roles may include establishing the LLC to purchase the asset, vetting attorneys, brokers, and bankers, finding passive investors, evaluating markets and assets, and underwriting deals. This is all before an asset is even acquired!

 

After a syndication deal is selected, the general partnership creates the investment summary and business plan, conducts the investors’ webinar, coordinates with the chosen attorneys to draft legal documents, assists passive investors with wire transfers and PPM questions, and even obtains financing.

 

Then, once a real estate syndication is funded, financed, and acquired, the real work of executing the business plan, overseeing renovations (if any), implementing efficiencies, and communicating with investors begins. Throughout the hold period (typically about 5 years), the sponsor team must provide property status updates and distributions when applicable, and determine when and how to best exit the deal (sell the property). 

 

Again, while you personally won’t be doing all of this yourself because you’ll be relying heavily on a support team of accountants, fellow general partners, contractors, and property managers, it’s likely you’ll have a heavy hand in several phases throughout the hold period. 

 

The question is, would you enjoy this? 

 

If you’re interested in investing in real estate syndications because of the time-freedom opportunity, maybe becoming a limited partner is best. Alternatively, if you find it enthralling to imagine being in the action and helping make significant decisions regarding a multi-million dollar property, then maybe it’s time to think about becoming a general partner. 

Which Is Better? LP or GP?

 

While I can’t say that either role is best for everyone across the board, I can say that each person may be better suited for one or the other. The choice to invest as a limited or general partner is extremely similar to the choice between becoming an active or passive investor. 

 

Some investors are both limited and general partners, sometimes within the same investment opportunity. Other investors choose one partnership level over the other based on their lifestyle and financial goals. 

 

From first-hand experience as both a limited partner and a general partner, I can tell you that the general partner role requires real work. It can be stressful to obtain financing, hire the best property management, come up with unique solutions to property-specific problems, and execute each phase of the business plan within the agreed-upon timeline. While the payoff is rewarding and there are many other benefits to being a GP, you’re still contributing time in exchange for profit, and it can quickly seem like another 9-5.

 

Meanwhile, as a limited partner, I really enjoy simply investing my money and letting someone else handle all the project execution milestones. It’s nice to receive distributions throughout the project, even though I’ve put in zero work. Passively investing as a limited partner is truly the answer to escaping the time/money conundrum and creating a lifestyle of freedom. 

 

So which is right for you? Come up with that, and you’ll have your very own custom answer as to which role is better.