What Were Real Estate Limited Partnerships
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Real estate limited partnerships were popular investments back in the 1980s, to sell to investors looking for tax shelters. They were not REITs, but some investors didn't know a REIT from a limited partnership.
They were limited partnerships, which means that a whole lot of investors bought shares as limited partners, but the company which operated the real estate was the general partner. Since the general partner was selling the investment opportunity as well as running the commercial real estate it owned, there were many conflicts of interest.
Fees were based on the total mount of property held by the partnership, giving the management the incentive to acquire as much real estate as possible, whether it was a worthwhile investment or not.
Also, Shares in a Real Estate Limited Partnership were Illiquid
You could buy them from your broker, but you couldn't unload them.
When the real estate market was rising rapidly, investors might make money through capital gains.
But many were actually looking to lose money, to shelter their other income from taxes.
It is an odd concept, and in 1986 the government changed the tax code so that losing money on an investment could not save you money from taxes on your other income.
This brought to an end many tax shelter schemes, including real estate limited partnerships.
These limited partnerships have nothing to do with real estate investment trusts, except that they both invested in real estate, but they tended to scare some investors that didn't understand the difference.
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