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From Mark Ford, editor, Creating Wealth: More than a few Palm Beach Research Group subscribers are interested in this kind of investing.
It can give you steady—and substantial—ongoing income plus equity growth. That amounts to a potentially big return on investment (ROI)… with limited risk and almost no work.
As a limited partner, you’re not buying into a business with the intent of running its daily operations. You’re not going to wield significant control or be the go-to decision-maker. You’re just a “money guy.”
You supply the business with cash in exchange for a small share of the profits.
All businesses of this type are structured in one of three ways: limited partnerships (LPs), limited liability partnerships (LLPs), or limited liability companies (LLCs).
There are just three rules to investing as a limited partner. They’re simple… easy to understand… and easy to follow:
- Invest in businesses you know something about.
The best opportunities are in the industry you’ve worked in all your life. You know the marketing side of the business… what it costs to create products… what consumers are willing to pay… and the bad ideas that caused most of the failures in the past.
You also know enough to evaluate the competence of the general partners.
- Invest with people you trust.
There are many ways for general partners to screw limited partners. You can protect yourself by having a good attorney review any contracts or agreements before you sign. But paperwork can’t protect you completely.
You should invest only in people you know—from experience—have integrity.
- Bring more than money to the table.
As a limited investor, you can’t control the business in any way. (If you do, you might be subject to general liability.) But you can influence the general partners if you think they’re heading in the wrong direction.
General partners will listen to you if they think your suggestions have merit. And the only way your suggestions will have merit is if you have knowledge—either industry knowledge or general business knowledge—they respect.
Reeves’ Note: All paid PBRG subscribers can read Mark’s full essay on how to invest as a limited partner in the December issue of Creating Wealth, right here.