With the new OSFI mortgage qualification stress test and other government measures put in place recently, many Canadians are looking for creative solutions to allow them to enter into the real estate market or expand their real estate investment portfolio. The Limited Partnership investment structure leverages the power of multiple investors, allowing independent investors to finance large-scale projects, starting at just $25,000.
So, what exactly is a Limited Partnership?
A limited partnership (LP) is a form of partnership that must have at least one General Partner and at least one limited partner. For the purposes of real estate development think of it as a very sophisticated joint-venture. The Limited Partnership structure is a legal structure that allows two or more partners to invest in a business but limits their individual legal liability (or risk) to the total of their respective investments – and no more. For example, if a partner invests $25,000 (which is the minimum US or CAD contribution for our LPs), they are only responsible for that amount.
The General Partner (GP) has management control, share the right to use partnership property, share the profits in predefined proportions, and has joint and several liability for the debts of the partnership. The GP has the actual authority, as agents of the firm, to bind the partnership in contracts with third parties that are in the ordinary course of the partnership’s business.
Like shareholders in a corporation, limited partners have limited liability. This means that the limited partners have no management authority and are not liable for the debts of the partnership. The limited partnership provides the limited partners a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the limited partnership agreement. General Partners thus bear more economic risk than do limited partners, and in cases of financial loss, the General Partner will be the one that is personally liable.
What does an LP look like in action?
We represent two North Vancouver firms (Western Wealth Capital and Western Canadian Properties Group) that leverage LPs to fund land development, and multifamily value add deals in emerging markets across Canada and the United States. These companies have a combined 30 years of experience and have completed a total of $2.5 billion in real estate transactions.
Our real estate investors contribute private equity funding for the projects and the LP’s are registered owners on the property title, but they don’t have to worry about the headache of acquiring financing, managing the property or delivering operating efficiency.
Investors can sit back and relax, while the LP’s General Partner carries out the business plan. Over the years, our partners have perfected a turn-key business plan that has delivered proven results time and time again.
Western Wealth Capital acquires underperforming US multi-family rental properties and increase net operating income and valuation through an approach that has been successfully applied across our portfolio. The GP manages these assets, distributes resulting cash flow to investors annually and, when appropriate, divests.
Western Canadian Properties Group acquires land, rezones to higher density and develops properties for sale to institutions, owner occupiers or investors. Buy by the acre, sell by the foot.
Read our blog on multi-family real estate for more details on the approach.
What are the benefits of investing in an LP?
The LP structure is better suited for a passive real estate investor looking to leverage equity by investing alongside an experienced developer. Typically, the deal size is larger, earning multiples greater and investment horizon shorter. Many of our real estate deals generate double-digit annualized return within the three-to-five year investment term.
There is also peace of mind knowing you investing with the best in the real estate business. Financial models are available pre- and post- purchase to provide a transparent look at how each step impacts overall profits. Ongoing progress reports, online portal access and annual statements are readily available and easily accessible.
Want to learn more about current opportunities to invest in a Limited Partnership? Contact us for details!