A limited partner, or LP, is a passive investor who contributes capital to a real estate deal in exchange for an ownership interest, without taking on management responsibility or personal liability beyond the amount invested. LPs typically receive periodic distributions from property cash flow and a share of profits upon sale or refinancing, based on the terms outlined in the deal's operating agreement.
Because limited liability protection generally requires LPs to remain passive, they do not vote on day-to-day operating decisions or direct the property's management, relying instead on the general partner to execute the business plan. Understanding how return waterfalls and fees are structured between limited partners and the sponsor managing the deal is one of the more important steps an investor can take before committing capital, since those terms determine how profits are actually split once a project performs.
Further reading: LP vs. GP: How Co-Investment Aligns Interests in Direct Real Estate Deals
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