FREQUENTLY ASKED QUESTIONS
Q: What is a real estate limited partnership?
A: It is a real estate investment vehicle that provides all tax shelter benefits to an individual without any corporate tax liabilities.
Q: What is equity?
A: The amount of cash required for an investment inclusive of down payment on loan, up-front fees, reserves, commissions, etc.
Q: What is a limited partner?
A: The limited partner is the passive investor in a venture, he contributes the cash to a venture without actually being involved in the day to day management of the operation.
Q: What is a general partner?
A: The general partner is the entity which oversees the actual day to day operation of the investment.
Q: How much does the limited partner invest?
A: It could be one limited investor who contributes 99% of the equity, or it could be several investors who share the ownership on a prorated portion of the deal.
Q: How much does the general partner invest?
A: A minimum of one percent of the equity required.
Q: Can the general partner invest in the partnership?
A: Yes, the general partner could invest as a general partner.
Q: Does the limited partner have any liability?
A: No, there is no liability for financial loss beyond his original investment. The limited partner is not personally liable in the event of default, nor is he even liable for debts of the operation.
Q: Does the general partner have any liability?
A: Yes, the general partner has unlimited liability for partnership debts. The general partner can however shield himself by being incorporated.
Q: Does the investment allow for write-offs (tax deductions)?
A: Yes, each individual investor receives the tax benefits of the investment as if they were the individual property owners depreciation as an example.
Q: What is a preferred rate of interest?
A: It is the level of return the investor must get before the general partner shares in any of the partnerships' profits.
Q: How is the cash for the preferred rate of return generated?
A: From the cash flow operation of the venture.
Q. Is it cumulative?
A: Yes, the interest on the principal is owed even if the actual cash flow generated is less then 9.5% in a particular year.
Q. How often does the partner receive distributions?
A: At least once a year, or more frequently as determined by the general partner.
Q: What percentage of the cash flow does the limited get?
A: A percentage that is pre-determined by the limited partnership agreement, generally 65%-70%.
Q: What percentage of the cash flow does the general get?
A: A percentage that is pre-determined by the limited partnership agreement, generally, 30%-35%.
Q. When do I get my principal investment back?
A: Upon sale, or refinancing of the asset.
Q: How much profit does the limited partner make?
A: 65%-70% after any balance due on interest to the investor, return of initial capital contribution, cost of sale and loan balance have been deducted.
Q: How much does the general partner make?
A: 30%-35% after any unpaid interest, return of initial capital contribution, cost of sale, and loan balance have been deducted.
Q: Does the general partner receive any fees?
A: Yes, a 1% management fee is paid monthly out of the asset's cash flow.
Q: How is a limited partnership taxed?
A: Not like a corporation, the profits and loses are passed directly through to the partners who receive a "schedule k-1", shareholder's share of income, credit, deductions, etc.