Partnerships5 min readChris Kirkman

GP or LP: pick your seat before you pick your deal

Most first partnerships go wrong at the beginning, not the end. Two people find a deal, get excited, and only later discover one expected the other to run it. Pick your seat first, then go find the deal that fits it.

Know which seat you are taking before the wire clears.
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The general partner runs the deal: finds it, underwrites it, signs for it, operates it, reports on it. The limited partner brings capital, takes a defined return, and stays out of daily decisions. A joint venture splits defined roles between active partners. A capital partner sits between: mostly money, sometimes a signature, occasionally counsel. None of these seats is the junior one. A deal dies just as fast without capital as without an operator.

So audit yourself on paper. What are you genuinely good at, deal finding, underwriting, raising money, construction, books? What drains you? The gaps in your list are the description of your ideal partner. If you have cash and no time, be the LP on someone's deal, with a proven operator, and learn from inside. If you have hustle and no cash, find the deal; money follows a real deal far more reliably than deals follow money.

Write your strengths on one page and your gaps on another. The second page is your partner's job description.

And whatever seat you take, paper it like adults: roles, splits, decision rights, exits, and what happens when someone underperforms. The agreement you write while you like each other is the one that saves the friendship later.

Two seats at the same table

In a real estate partnership the general partner finds the deal, signs the loan, runs the property, and carries the liability. The limited partner brings capital, gets a return, and has almost no say in operations. Neither seat is better. They are different jobs, and most people pick the wrong one for where they actually are.

finds, signs, runs, carries risk

funds, waits, limited liability

Promote

the GP’s share above a hurdle

Pref

what the LP is paid first

How the money flows

A typical waterfall, in plain terms

Return of capital

LPs get their invested money back before anyone splits profit.

Preferred return

LPs receive a set percentage, often six to eight percent a year, before the GP participates.

The split above the pref

Remaining profit divides, commonly seventy percent to LPs and thirty to the GP. That thirty is the promote, the GP’s payment for finding and running the deal.

Fees along the way

Acquisition, asset management, sometimes disposition. Reasonable when disclosed; a red flag when they are how the GP actually gets paid.

The LP is paying for the GP’s time, judgment, and signature on the loan. Decide which of those you are selling or buying.

Which seat is yours right now

If you have capital and little time, or you want to learn an asset class from inside a deal before you run one, be an LP with a GP whose track record you have actually verified. If you have found the deal, have the time to operate it, and can qualify for the debt, you are the GP, and you should be paid like one. The mistake is sitting in the GP seat with LP-level involvement, or demanding GP economics while bringing only LP money.

Plenty of the people I work with started as LPs on one of my deals specifically to watch how it was done, then became GPs on their own. That is a legitimate path and a much cheaper education than making the mistakes yourself.

Before you sign either side

✓Read the operating agreement, not the deck. The deck is marketing; the agreement is what happens.

✓Know exactly what triggers the promote and whether it resets.

✓Ask what the GP loses if the deal fails. If the answer is nothing, walk.

✓Confirm who signs the loan and who is personally guaranteeing it.

✓Understand your exit: when can you get out, and who decides.

Where I sit

GP on the storage, because I run the operations and sign the debt. LP on a few things I wanted to understand before doing myself. The seat is a decision about what you are contributing, not about status, and the partnerships that lasted were the ones where everyone was honest about which they were bringing.

The homework I give people

Write down what you are actually good at and what you would bring to a deal: capital, deal flow, operations, underwriting, a lender relationship, construction knowledge. Then write down what you are missing. The gap between the two lists tells you which seat you belong in right now, and which kind of partner you are looking for.

Then decide how you want to start. If you have the cash and want to learn with less responsibility, find one deal with an experienced operator and go in as an LP with your eyes open. If you have found something off-market and have the appetite to run it, be the GP and go find the capital. If you are somewhere between, say so, and structure a joint venture where roles are written down before money moves.

For my Canadian partners

Several of the people I work with invest into US deals from Canada, usually as LPs at first. The general shape I see is a Canadian structure that owns the US entity, set up to avoid double taxation, and it is a solved problem with a cross-border accountant. Do not let the paperwork stop you. The returns and the price of assets in the States are why they keep doing it.

Go deeper: partnership structures, agreements, and conflict repair are a full part of The REbuild, and we work live partner decisions every week in The REal Circle.