DEFINITION of Real Estate Limited Partnership (RELP)
A real estate limited partnership (RELP) is a limited partnership entity organized to invest in real estate. A RELP is typically organized with an experienced property manager or real estate development firm serving as the general partner. Outside investors are sought to provide financing for the real estate project in exchange for a share of ownership as limited partners.
BREAKING DOWN Real Estate Limited Partnership (RELP)
Limited partners are much like stockholders in a public company in that they have only limited influence in the business operations of the partnership. Limited partners also have limited liability. If the RELP faces losses, limited partners are only liable for the amount of their capital contributions.
The Balance of Power When Joining a Real Estate Limited Partnership
The indirect influence that limited partners have over the investment strategy of the partnership means that the general partners hold the active decision-making authority in the arrangement. Limited partners essentially put their trust in the general partners to decide what properties will be acquired and sold. The funding that limited partners put towards the RELP can almost seem like payments are being made to the general partners.
Limited partners must weigh the potential returns of participating in a RELP against the restrictions they face. For example, the funds they invest in the partnership will be illiquid and not easily accessible if suddenly needed. Other types of investment assets such as stocks can be cashed out comparatively quickly should the need arise. Getting money back from a RELP may mean waiting for the results of a property sale and the distribution of the proceeds the partner had rights to.
Strategic benefits a limited partner may find attractive about a RELP include the opportunity to enjoy potentially lucrative long-term investments. The success of the partnership can be gauged by its ability to make investment decisions that yield strong returns.
Participation in a RELP can offer the limited partners some tax-based incentives. For example, limited partners can enjoy untaxed profits that are distributed through the partnership. They could also pass through tax losses.
The terms of each RELP may vary, but they can include minimum amounts needed to invest with higher percentages of ownership granted after investing beyond a certain threshold. The RELP may have a set time period when it will pursue property acquisitions. The organization may set a target date when it expects limited partners to see returns on their initial investments.
The investment strategy of the RELP could include refinancing property and passing along a large portion of the equity as a dividend distributed to the limited partners.