Real Estate Limited Partnerships provide a way to collectively participate in real estate ownership, without the large amounts of money normally required, while limiting the amount of risk when you “go it alone”, or the potential problems encountered due to lack of experience in the industry. The goal is to produce a profit for the partners.
It is simply a way to share the benefits and risks of owning real estate with a group of like-minded individuals. KAJEN markets an investment that is a limited partnership between a group of people for the sole purpose of investing in income-producing commercial real estate.
What is a Limited Partnership?
A limited partnership is a partnership with special characteristics. In particular, it has two types os partners:
– general partners
– limited partners
General partners manage the business and bear unlimited liability for the debts of the limited partnership. Limited partners contribute capital and share in the profits and losses, but do not participate actively in the management of the business. They generally enjoy limited liability for the debts of the partnership.
The reason it is called a Limited Partnership is because the investors have limited risk in owning the investment. In this case, the maximum financial risk to the investor is the value of their initial investment. There is also no legal liability or mortgage recourse to the investors as this is entirely borne by the general partner.
All Real Estate Limited Partnerships marketed by KAJEN are similar and are anticipated to have comparable performance projections.
Mortgage and Cash Flow
The properties are designed to be mortgage free within 12-14 years. During the mortgage pay-down period, there is very little cash flow to the investors as it is primarily used to pay off the mortgage as quickly as possible. Once the mortgage is retired, the cash flow surplus from operation of the property increases significantly and is distributed to the investors in the property as a long-term stream of income.
Return on Investment
The return on investment is calculated on the after-tax value of the investment and is comprised of the initial tax advantages, mortgage principal reduction, cash flow surpluses and projected capital appreciation in the property.
A tax deduction of approximately 50% of the purchase price of these partnership units is generated in the calendar year that the unit is purchased. This tax deduction is like an RRSP tax deduction. Your personal benefit is calculated by multiplying the tax deduction by your personal marginal tax rate.