Understanding Real Estate Limited Partnerships in Ontario

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Understanding Real Estate Limited Partnerships in Ontario

Chris Habets
Investor · Ottawa, Ontario · Member since 2017 · 145 posts · 52 votes

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?

- 

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  • Jacob Perez
    Rental Property Investor · Hamilton, Ontario · Member since 2016 · 285 posts · 181 votes
    9y

    There's a lot there. I would simplify this by asking a few questions. 

    1) What type of property are you looking to buy? (residential, 5 units or less?, commercial, etc.)

    2) What's your growth strategy moving forward?

    You might benefit by going with a much simpler approach by structuring a JV deal, although it really depends on the project and the amount of investors you'd really require.

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  • Roy Cleeves
    Residential Real Estate Broker · Kitchener, Ontario · Member since 2014 · 687 posts · 370 votes
    9y

    I have done Joint Ventures instead of limited partnerships.  IT seems much easier to set up and you and the investor can be protected by registering the Joint venture on the title to the property.

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  • Chris Habets
    OP
    Investor · Ottawa, Ontario · Member since 2017 · 145 posts · 52 votes
    9y

    Maybe I'm confused - I thought "Joint Ventures" was a blanket term to cover co-ownership, general partnerships, limited partnerships and corporations... 

    @Jacob Perez, Looking to serially flip houses for 2-3 years, and transition into buy-and-hold.

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  • Jacob Perez
    Rental Property Investor · Hamilton, Ontario · Member since 2016 · 285 posts · 181 votes
    9y

    So it really just depends on your scenario. If you're purchasing a flip with 1 investor. A simple JV would suffice, outlining how much $ each partner is investing, which responsibilities each partner has, what equity % & % of expenses are to be paid out by each party.

    There are a lot of good templates I can send you some if you'd like.

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  • Chris Habets
    OP
    Investor · Ottawa, Ontario · Member since 2017 · 145 posts · 52 votes
    9y

    Thanks Jacob, I've done a buy-and-hold under that structure before. It's worked very well! But I don't have a single (or two) investors who are willing/able to pony up Ontario-Real-Estate-Amounts of cash, I'd be looking at 5-10 people...

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  • Paul H.
    Developer · Ottawa, Ontario · Member since 2019 · 105 posts · 58 votes
    6y

    @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.

    Thank in advanced,

    Paul

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  • Chris Habets
    OP
    Investor · Ottawa, Ontario · Member since 2017 · 145 posts · 52 votes
    6y
    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).

    1Reply
  • Paul H.
    Developer · Ottawa, Ontario · Member since 2019 · 105 posts · 58 votes
    6y

    @Chris Habets Thanks so much for the quick reply, I was at OREIO when you spoke about your NS deal, glad to hear that you're closing in on the finish line.  

    Cheers,

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