Structure of $100000000 Real Estate Funds for 2023
When setting up a real estate or mergers and acquisitions private equity fund, the terms “general partner” and “limited partner” are commonly used. The general partner is the company owned by the fund’s owners and is responsible for finding and underwriting deals, as well as raising capital and selling units to investors. The limited partnership, on the other hand, is what is sold to investors as units. An investment manager may also be involved, which is a third company that manages the fund on behalf of the investors. Typically, only two companies are needed to set up a real estate or M&A private equity fund, a general partner and a limited partnership. (funds for real estate investing)
When setting up a real estate or M&A private equity fund, units of a limited partnership are typically acquired as assets. A general partnership company, such as an LLC or corporation, is created to manage the fund. The limited partnership is where investors buy units to become part of the fund. For example, if there are 1000 units priced at $10,000 each, an investor would buy that number of units to invest in the limited partnership. The general partner is then rewarded with a commission and a share of the profits made for the investors in the limited partnership. Sometimes, an investment manager may also be involved, which is a third company that manages the fund on behalf of the investors. This investment manager operates under the general partner. (funds for real estate investing)
An investment manager is a third company that people can choose to delegate some of the investment management to. The general partnership may be in charge of the overall vision of the company, while the investment manager handles the more specific tasks such as underwriting deals, analyzing deals and seeking out new deals. In setting up a real estate or M&A private equity fund, a person can choose to have two companies, a general partnership and a limited partnership, or three companies, which includes a general partnership, a limited partnership and an investment manager. For those who are new to this and not looking to build a large team, it is recommended to stick with the two-company setup as it is less complex and simpler. But it can always be added later if necessary. (funds for real estate investing)
Many of the people I work with prefer to move forward with speed and choose to have just two companies set up for their real estate or M&A private equity fund. Even some sophisticated investors who have raised over $600 million use a simple two-company setup. Some people choose to have three companies set up in order to impress others or to show off their ability to structure their company in the same way as institutions do. The three-company setup is seen as a higher status way of doing it, and can demonstrate that the person is prepared and knows what they’re doing. However, there can be some tax benefits to the three-company setup as the general partnership can use the investment manager to lower their profits and save money on taxes. This is something that a CPA or tax advisor can provide more information on. (funds for real estate investing)
In general, people sometimes use the three-company setup to save on taxes. However, the downside is that it adds extra complexity and may not make sense if you’re not looking to scale to multiple employees. To determine what’s right for you, consider your tax situation and consult a tax advisor to see if the three-company setup would result in tax savings. Additionally, look at what others in your area are doing, as some people may use the three-company setup to show their sophistication, while others may use the simpler two-company setup for simplicity’s sake. It’s important to remember that everyone’s situation is different and there’s not one right answer. But by taking into account the potential tax savings and observing what other people in your area are doing you can make an informed decision. (funds for real estate investing)