Understanding Real Estate Limited Partnerships in Ontario

[Chris Habets]

Hi all, I'm trying to make sure I understand the securities rules and exemptions behind creating a "RELP" - Real Estate Limited Partnership.

Assume I started one. In most cases, I'd only be allowed to sell securities to accredited investors, with a minimum of $10K investment. However, I don't have any intention of doing this. 

My understanding is that I could start "Habets LP", and sell securities to "family, close personal friends and close business associates" (FFC).  The only condition on raising money from these people would be a "risk acknowledgement form" is signed by them before hand. The idea would be to be the only general partner, in full control of decisions and investments. For their simplicity - and to avoid them messing up their tax returns and calling the CRA down - I'd give out a T5013 to each LP. Of course, if I incorporated first and made the corporation the general partner, then I would need to give out a T5013.

The reason I'm looking at this is two-fold. 1: I need $$$$ to really get going, and 2: curiosity.

I'm looking at a small pool of people and a small pool of money - 10-20 and $100K-$200K

So, my questions:

- Am I following this right? Does the family, friends and colleagues exemption work this way?

- Should I incorporate before doing this, or not bother? The advantages seem to be the dividend income over regular income, plus some additional liability protection...

- If I do sell securities to FFCs, how can I valuate their buy in? Can I just say $10K = 5%, take it or leave it? Can I structure it in a way that spreads ownership as more people buy? IE: John buys in with $10K and gets 50%, but when Liam buys in with $10K, John and Liam now have 25% each? Obviously the contract for the LP would be key here.

- RELPs seem to generally take a fee for managing, along the lines of 30-40% - is this right?

Am I way off base?

- 

[Chris Habets]

Originally posted by @Paul H.:

@Chris Habets, I'm currently in the same situation as yourself two years ago.  Have you had any luck and found a road map that works, I feel like I'm researching in circles. My Situation: Wanting to buy Multifamily properties, commercial or residential loan type, with Friends and Family investment. I would have some capital in the investment, and would do all the leg work in getting it off the ground for my share of the deal.

 Hi Paul, I hate to disappoint but I ended up going a different route. I was confident that what I was going to do would be allowed, and would work (I even had a lawer look at it), but I was not ready to raise $100K+ in reality from friends and family. I had had roughly $40K committed when I let people know I decided against it FOR NOW, and am certainly not closing the door. I would hope to do it later, although I would probably control it through a corporation and have LPs in with the Corp being the general partner.

Instead I did it the old fashioned way - I took equity out of my existing rental property and bought a triplex in a lower-price area (Cape Breton), and am less than a month away from completing that BRRRR (I've bought, rehabbed, rented, now I need to finish the refi and start the repeat).