If you’ve ever invested in a real estate syndication or are thinking about it, you’ve probably heard the terms general partner and limited partner.
Understanding the difference between the two is for anyone who wants to invest confidently and know how their money and liability are handled.
In this article, we’ll break this down in simple, real-world terms.
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The Basics of a Partnership
A partnership is a business entity where two or more people or companies join forces to pursue a shared goal, like buying and managing a mobile home park or other investment property.
The partners share profits, losses, and, depending on the type of partnership, may also share liability.
There are a few common partnership types used across the United States:
Each of these has different rules for who manages the business, who’s liable for debts, and who can stay more passive in the investment.
In the real estate syndications I’ve invested in, the structure is almost always a limited partnership or limited liability company (LLC).
This lets investors participate passively while professional managers handle day-to-day operations.
What Is a General Partner?
A general partner (GP) is the person or company running the show. In real estate, this is often the sponsor or syndicator—the one who finds the deal, raises capital, arranges financing, oversees renovations, and handles property management.
You can think of the general partner as the “active investor.” They’re responsible for every major decision, from negotiating the purchase price to creating the business plan and handling tenants.
Because GPs are in control, they also shoulder unlimited liability. That means if the partnership can’t pay its bills, the GP’s personal assets could be on the line.
For that reason, most GPs form a limited liability company to act as the general partner, adding an extra layer of protection.
Example
Imagine a real estate syndication that buys an RV park. The GP finds the property, arranges a loan, and raises money from investors. They manage everything from renovations to leasing.
If something goes wrong—say a major legal issue or a default on the loan—the GP is responsible. That’s why it’s called full liability.
General partners often earn a management fee and a share of profits (sometimes called a “promote” or “carried interest”) as compensation for their work and risk.
Key Traits of General Partners
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Active role: They run the business operations and make important decisions.
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Unlimited personal liability: They’re legally responsible for the partnership’s debts and obligations.
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Tax treatment: Income “passes through” to their personal tax return, reported on Schedule K-1 of the U.S. Return of Partnership Income (Form 1065).
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Compensation: Earn management fees and a share of profits after preferred returns are paid to limited partners.
Related: GP vs LP In Real Estate Syndications: What’s The Difference?
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What Is a Limited Partner?
A limited partner (LP), sometimes called a silent partner or passive investor, provides the capital for the deal but doesn’t take part in daily management.
In a real estate syndication, these are the investors who wire funds, often $50,000 to $250,000 or more, and let the general partner handle the work.
Their liability is limited to the amount of their investment. They can’t lose more than what they put in, and their personal assets, like savings accounts or primary residence, are protected.
Limited partners don’t have decision-making power. They can’t hire or fire property managers, approve loans, or negotiate leases. However, they receive updates, financial reports, and profit distributions as the property performs.
Example
Suppose 40 investors each put in $75,000 as limited partners. Together, they own most of the equity but have zero management responsibilities.
When rents come in, they receive distributions (their share of the cash flow). If the property sells in five years at a profit, they also receive a portion of the capital gains.
That’s the beauty of passive investing: no tenants, no toilets, and no late-night calls—just mailbox money.
Key Traits of Limited Partners
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Passive role: Provide capital but do not manage day-to-day operations.
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Limited liability: Only risk is their initial investment.
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Tax treatment: Receive a Schedule K-1 showing their share of income, losses, and depreciation.
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Priority: Usually earn a preferred return (for example, 8%) before GPs take their share of profits.
| Feature |
General Partner (GP) |
Limited Partner (LP) |
| Role |
Active—runs the project |
Passive—provides capital |
| Liability |
Unlimited personal liability |
Limited to amount invested |
| Management |
Full control and decision-making |
No control—hands-off |
| Taxation |
Income passes through to personal return |
Income passes through to personal return |
| Compensation |
Earns fees and share of profits |
Receives preferred return and profit split |
| Risk Level |
High |
Low |
| Involvement |
Day-to-day operations |
Occasional updates |
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In short: General partners work for income. Limited partners invest for income.
Legal and Structural Considerations
Forming a partnership in the United States typically involves state laws and filings with the Secretary of State. A limited partnership must file a Certificate of Limited Partnership, which lists the general partner’s name and address (making that information public).
In contrast, general partnerships often require no formal filing. They can form automatically when two or more people start doing business together, a convenience that’s also a liability risk, since partners are personally responsible for business debts.
Many syndications and private equity firms use an LLC as the general partner of a limited partnership. This adds limited liability protection for the people running the deal while maintaining the pass-through tax benefits.
Common Real Estate Partnership Structures
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Limited Partnership (LP): One GP runs the deal; LPs invest passively.
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Limited Liability Partnership (LLP): All partners share management duties but enjoy some liability protection.
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Limited Liability Company (LLC): Offers flexibility with taxation and liability, often used as the managing entity in syndications.
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Joint Venture (JV): Two or more active partners share both control and risk—common for smaller real estate projects.
For real estate business partnerships, the LP/LLC combo is the gold standard because it allows one side to manage and the other to invest passively while maintaining clear liability boundaries.
Taxes and Income Flow
Both general and limited partnerships are pass-through entities. That means the business itself doesn’t pay income tax; instead, profits and losses “flow through” to each partner’s personal income tax return.
Each partner receives a Schedule K-1 from the partnership showing their share of the income, deductions, and credits. They report this on their own tax filings.
Limited partners typically aren’t subject to self-employment tax because they’re not actively managing the business. The general partner, however, must pay self-employment tax on their share since they’re performing services for the partnership.
Depreciation deductions, business expenses, and interest payments all pass through proportionally to partners, which can create powerful tax benefits—especially when combined with real estate depreciation.
Advantages and Disadvantages
Benefits for Limited Partners
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Liability protection: You can’t lose more than your original investment.
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Truly passive income: The GP handles everything.
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Access to large assets: Join deals like multifamily complexes or industrial properties you couldn’t buy alone.
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Tax efficiency: Take advantage of pass-through deductions and depreciation.
Drawbacks for Limited Partners
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No control: You’re along for the ride once invested.
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Illiquidity: Your money may be tied up for 5–10 years.
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Reliance on sponsor: Success depends heavily on the GP’s competence and honesty.
Benefits for General Partners
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Control: You make the decisions and drive performance.
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Leverage: Use investor capital to scale faster.
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Profit potential: Earn management fees plus a share of the profits.
Drawbacks for General Partners
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Unlimited liability: Full responsibility for the partnership’s debts.
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Time-intensive: Active management, compliance, and investor relations.
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Legal exposure: Must follow securities laws, file detailed legal documents like the Private Placement Memorandum, and maintain investor transparency.
Partnerships in Real Estate Syndications
In most real estate syndication investment opportunities, the structure looks like this:
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A limited partnership is formed.
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The general partner (sponsor) manages the entire project.
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Multiple limited partners (investors) contribute capital for equity ownership.
This setup allows individual investors to join large commercial properties—like apartment complexes, office buildings, or industrial parks—without dealing with tenants or maintenance.
The GP earns a management fee and a share of profits, while LPs receive distributions from rental income and appreciation when the property sells.
For example, if a property sells after five years and investors double their initial investment, LPs might receive an 8% preferred return each year plus 70% of the remaining profits.
This model attracts passive investors who want diversification, potential long-term growth, and a way to invest in commercial real estate without managing business operations.
Real-World Example
Let’s say a sponsor forms Oak Tree Capital Partners, LP to buy a 200-unit multifamily property.
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Oak Tree Management LLC acts as the general partner.
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40 limited partners each invest $100,000.
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The GP contributes $200,000 and arranges a $10 million loan.
Over five years, the property generates solid cash flow from rental income and sells for $18 million. After paying off the loan and expenses, investors receive distributions. The LPs enjoy a healthy profit, while the GP collects a management fee and a 20% share of profits above the preferred return.
Everyone wins, but everyone’s responsibilities were clear from the start.
Choosing the Right Role
So, which is better, being a general partner or a limited partner? It depends on your personal goals, risk tolerance, and how involved you want to be.
If you prefer a hands-off investment where you earn passive income, the LP role is your best fit.
If you have experience, time, and a desire to lead syndication projects, becoming a GP might make sense, but be prepared for full responsibility.
Either way, both roles play a critical part in building real estate investment opportunities that create wealth and freedom over time.
Final Thoughts
General partners take on greater responsibility, risk, and reward by managing the entire project. Limited partners, on the other hand, provide the capital and enjoy the benefits of real estate ownership without the headaches.
Whether you’re investing in multifamily apartments, industrial properties, or other commercial real estate assets, knowing how these roles work will help you make smarter, safer investment decisions.
The next time you come across a syndication opportunity, ask yourself: Do I want to run the deal—or simply profit from it?
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