Loans & Finances Today

Anything sold as a limited partnership is a speculation. As a limited partner, you give up the right to control the investment and pay huge fees to those who do control the investment.

Limited partnerships work as fun money. Stage plays and movies are funded through limited partnerships. Returns are unpredictable and far more often negative than positive. Based on figures cited in the June 18, 2001 issue of Barron’s, more than 80 percent of the time, you lose every penny invested. Nevertheless, you do get to meet the stars, attend at opening night, secure seats for friends and family, and brag about an occasional hit.

Limited partnerships are also used to sell interests in airplanes, ships, train cars, heavy machinery, or any asset that requires a large capital investment. Overconfidence, again, is your enemy. The promoters will show you how valuable the asset is, how it will be leased or sold at a profit to a highly secure and profitable end user, and how reasonable their fees are for the service they are providing. You will have to qualify as an investor and will be told that you are one of a select group of individuals being offered this special deal for a limited time only. Once your ego has calmed down, you must ask: If this is such a great investment, why didn’t the users just get a bank loan and buy it themselves? In fact, why didn’t the promoters just get a bank loan and buy it themselves?

Remember, anything sold as a limited partnership is a speculation. Solid real estate, sold as limited partnerships, resulted in huge losses a few years back. Investors compatible with real estate were not compatible with RELPs. The packaging of any investment can affect its emotional impact on you. In the next chapter, we will look at packaging and other aspects of form that affect you even though the substance of the investment may otherwise be within your comfort zone.