Most limited partnership (LP) investors are in it for the long haul – they hold their interests in order to see consistent, passive income from quarterly distributions. However, there are a few LP investors who actively trade their interests, and some of them have made a killing in the process. If you’re considering becoming an LP investor, or if you’re already an LP investor looking to boost your returns, here’s how you can make money by selling your LP interest.
Sell Your Limited Partnership
As an LP investor, you may be wondering why you would want to sell your interest in a limited partnership. After all, isn’t the whole point of investing in an LP to generate passive income?
The answer is that it depends on your personal financial goals and circumstances. For example, selling your LP interest may be a good idea if you need to raise cash for an emergency expense or another investment opportunity. Or, if you’re nearing retirement and want to diversify your portfolio by selling some of your LP interests and reinvesting the proceeds into stocks or bonds, that could make sense as well. Ultimately, selling your LP interest is a convenient exit strategy that can give you the flexibility to pursue other financial goals. Selling your LP interest can also provide the following benefits:
- Immediately realize the value of the interest
- Convert a dormant tax shelter into cash
- Avoid future K-1 reporting
- Avoid paying income tax on the investment on an ongoing basis
- Make your tax return and estate planning easier
- Profit from the low long-term capital gains tax rates
- Have complete control over when you leave the partnership
Of course, you can also sell your LP interest simply to make a profit. LP investors who actively trade their interests can potentially make a lot of money if they buy and sell at the right times.
Exchange Your Investments for Cash
When you sell your LP interest, you’re essentially exchanging your investment for cash. The amount of cash you’ll receive depends on a number of factors, including:
- the value of the LP interest;
- the current market conditions; and
- the buyer’s offer.
If you need to sell your LP interest quickly, you may not receive top dollar for it. However, if you’re patient and wait for the right buyer, you could potentially make a significant profit on the sale.
It’s also worth noting that some LP interests may be more valuable than others. For example, an LP interest in a real estate partnership is likely to be more valuable than an LP interest in a hedge fund partnership. The value of your LP interest will also depend on the specific terms of the partnership agreement, such as the distribution schedule, the length of the partnership, and any special provisions that may be in place.
Free Up Capital
Investors who are looking for immediate returns may also want to consider selling LP interests to free up capital so they can reinvest the money into a different venture.
For example, let’s say you have $500,000 invested in LP interests, and you want to buy a rental property. You could potentially use the proceeds from selling $250,000 worth of LP interests to help finance the purchase of the rental property. Or, if you’re interested in investing in a startup business, you could use the cash from selling LP interests to provide seed funding for the business.
Of course, you’ll want to weigh the risks and potential rewards of any investment before deciding whether or not to sell your LP interest. But if you’re comfortable with the risks and believe you have a solid investment plan, selling LP interests can be a great way to free up capital so you can pursue other opportunities.
A Resource for LP Investors
Are you looking for a way to simplify your finances and avoid ongoing tax obligations? Since LP Equity, LLC was founded 14 years ago, we’ve invested over $50 million in direct partnership buyouts, acquiring minority interests in over 400 distinct partnerships. We’re a leading LP interest buyer, and we’re here to help.
We empower limited partners to control their exit strategy and swiftly and painlessly exchange their investments for cash offers that, in the majority of cases, surpass those of other potential buyers. We specialize in the acquisition of limited partnership interests in partnerships that own and operate real estate in all submarkets, including affordable housing, market-rate housing, and commercial property.
We offer free consultations, and there’s no obligation to sell. If you’re interested in selling your LP interest, we ask that you contact Jay Landen or Adam McNutt (910-509-7202 direct) to discuss how our acquisition program could benefit you and your clients. We look forward to hearing from you.