A real estate investment partnership is a group consisting of two or more members, formed for the purpose of acquiring, developing and managing real estate investments.
Real estate investment partnerships or joint ventures usually involve a single real estate asset and consist of “passive” owners, who provide the funds for the investment operation, and “active” owners, such as construction companies or land developers, who execute the business.
The most common partnership structure is a limited liability company (LLC). Similar to a corporation, LLCs provide liability protection for the “members,” or owners, of the company; however, other features of LLCs provide management flexibility and the benefit of pass-through taxation, according to the Internal Revenue Service website.
Upon establishing a partnership, obtaining legal asssistance to outline the terms and structure of the partnership is an important step.
Money that enters a partnership can be structured as debt, which is secured against the real estate, similar to a bank; or as equity, which comes in as cash and is normally not secured against the real estate. Furthermore, an equity partner is often asked to sign a guarantee on any new debt that enters the partnership.