There are two specific types of limited partnership programs you’ll want to recognize: real estate limited partnerships (RELPs) and oil and gas programs. RELPs are similar to REITs, but they use a limited partnership structure. Oil and gas programs are business ventures that focus on drilling for natural resources.

RELPs are limited partnership investments that aim to earn market returns from their real estate holdings. RELPs can do this in several ways:

• Some invest for capital appreciation, which happens when property values rise.
• Others focus on income, such as mortgage payments or rent from tenants.

RELPs may also offer specific tax credits and deductions.

• Tax credits may be available when the partnership supports government-subsidized projects, such as low-income housing or rehabilitation of historic properties.
• Tax deductions may come from mortgage interest payments and property depreciation.

In general, there are five specific RELP types to be aware of:

Undeveloped (raw) land RELP

• Acquires undeveloped land
• Seeks capital appreciation (buy land low, sell land high)
• No income potential
• Generally no tax benefits
• High risk and return potential
• Example: A LP buys land outside of the city and sells properties to developers as the city expands

New construction RELP

• Constructs new buildings
• Primarily seeks capital appreciation
• Potential income from leases
• Tax deductions from expenses and depreciation
• Moderate to high risk and return potential
• Example: LP builds a new apartment complex and sells property or leases to tenants

Existing structure RELP

• Acquires existing properties
• Primarily seeks income from leases
• Capital appreciation potential if property is sold
• Tax deductions from depreciation, mortgage interest, and maintenance expenses
• Moderate to low risk and return potential
• Example: LP buys an existing commercial office building with many current tenants

Government-assisted housing RELP

• Acquires or builds government subsidized buildings
• Seeks income from leases
• Little to no capital appreciation potential
• Tax credits provided for low-income tenants
• Tax deductions for depreciation and maintenance expenses
• Low risk and return potential
• Example: LP obtains apartment complex and rents to government-subsidized tenants

Historic rehabilitation RELP

• Acquires and improves historic properties
• Capital appreciation potential
• Tax credits are provided for preserving historic properties
• Tax deductions for depreciation and maintenance expenses
• Moderate risk and return potential
• Example: A LP obtains a historic building, updates and improves it, then sells the property that will become a museum

Investors often compare the pros and cons of RELPs versus REITs. Both invest in real estate projects, but they’re structured differently.

• RELPs are limited partnerships. They can be less liquid, but they may allow losses to pass through to investors.
• REITs are trust units. They generally have less liquidity risk (except for non-listed and private REITs), but they don’t allow losses to pass through - only income and gains.