If you’re a high net-worth investor, there might come a time when passive investments just aren’t enough. Yes, it’s great to sit back and watch your investment grow without the daily grind of property management.
But there’s also an appeal to take a more active role, directly influencing how investments perform. This journey from passive investor to general partner (GP) opens up a world of opportunity. If you’re thinking about stepping into a more active role in your investments, this article will show you what it means to be a General Partner, your role, and how you can get started.
The Power of Going Beyond Passive
As an investor, you might begin your real estate journey as a passive investor. You put your money into a syndication or fund, trusting the operator to manage the property while you collect monthly or quarterly distributions.
Passive investing is ideal if you’re busy and want your money to work for you without the need for daily involvement.
But if you want more control, want to grow your wealth further, and like the idea of ownership in decision-making, becoming a GP could be the next logical step. As a GP, you’re not just investing in someone else’s deal but actively shaping it.
What It Means to Be a General Partner
Becoming a GP means taking on more responsibility and involvement than you would as a passive investor. Here are a few key aspects you’d be involved in:
- Risk capital: As a GP, you’ll often need to put up your capital to secure the deal. This can include funds for earnest money or other expenses that might not be returned if the deal doesn’t go through.
- Loan guarantees: Some GPs leverage their personal financial history to secure a loan for the deal. Lenders appreciate a strong financial backer, which can give them more confidence in the investment.
- Equity sharing: Unlike passive investors, as a GP, you can capture a larger share of the returns. Instead of the operator taking 20-30%, you could be the one earning that percentage.
Finding the Right Opportunity to Step In
If you’re wondering how to get started as a GP, here are some ways you could step into this role:
- Providing risk capital: By fronting the money needed for a deal’s early stages, you make yourself a big part of the project’s success.
- Guaranteeing loans: Offering your financial track record to secure a deal can earn you a spot as a GP.
- Bringing valuable connections: Sometimes, just having the right contacts for capital or access to deal flow can get you in the GP space.
These options can get you into a GP role, but they also come with risks. If you’re new to the game, partnering with experienced GPs who can guide you through the process might be helpful.
Your Role as a General Partner in Multifamily Deals
In multifamily real estate, GPs have a crucial role. If you become a GP, you may be responsible for all aspects of the property’s performance, from managing tenants to overseeing renovations and keeping expenses in check.
Unlike a passive investor, you won’t be sitting back and collecting returns—you’ll be working behind the scenes to ensure everything runs smoothly.
Imagine a 50-unit apartment deal where you, as the GP, are handling tasks like negotiating with contractors or setting rental prices. This hands-on approach lets you directly shape the property’s success, making it as profitable and appealing as possible.
Bringing a Deal to the Table
Another way you can join a GP team is by finding deals yourself. If you discover a good deal and bring it to an operator, they may cut you in for doing so. Finding deals takes time, skill, and a deep understanding of what makes a property valuable, but if you can do it, you’ll be offering something valuable that not everyone can provide.
Some GPs earn their spot simply by spotting winning properties. For them, getting to act as a GP on a deal they found isn’t just financially rewarding—it’s also a point of pride.
Becoming a Fund Manager
A newer way for you to get involved as a GP is by becoming a fund manager. This involves setting up a fund, raising capital from other investors, and then placing that capital into a GP deal.
As a fund manager, you typically receive a percentage of the profits, making this an attractive option for investors like you who want to bridge the gap between passive and active investing.
This method is gaining popularity as more investors realize they can play an active role without directly managing a property. As a fund manager, you’re providing the capital needed to bring a deal to life, and you’re also earning equity in the deal’s success.
Partnering on Asset Management
If you’re seeking hands-on experience, joining a GP team to handle asset management could be a great option. Asset managers oversee the day-to-day operations of a property, from leasing and maintenance to financial reporting. By becoming the go-to person responsible for keeping a property profitable, you can earn equity as a GP.
This route isn’t for everyone; it requires time, energy, and a solid understanding of property management. But if you’re up for the challenge, asset management can be a satisfying way to earn a place as a GP.
Combining Passive and Active Investments
Not every investor fits neatly into the passive or GP category. Some, like you, may choose to do both—enjoying the security of passive investments while reaping the rewards of active involvement.
Combining active and passive investments can create a balanced approach, giving you the best of both worlds.
Passive investments provide steady returns, while active GP roles let you influence outcomes directly. This approach is ideal if you want to maximize both stability and profit.
Whether you’re a seasoned passive investor or just curious about what it takes to become a GP, there are many paths to explore. By providing risk capital, managing assets, finding deals, or even becoming a fund manager, you can start building your GP experience.
With the right guidance and dedication, this journey can transform how you invest and grow your wealth.
If, after reading this, you’d rather continue investing passively in apartments with the right operator , then read more of our blogs or check out our content on YouTube.
