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A real estate investment group is a collective of investors who combine their money to fund real estate investment opportunities. By pooling resources, they have far more buying power than they’d have on their own.
If you’re wondering whether joining a real estate investment group (REIG) is right for you, you’ve come to the right place. We’ll explore how REIGs work, where to find them, and how to conduct due diligence before you join one.
A real estate investment group, or REIG, is a group of individuals who jointly invest in real estate. Each REIG has its own investment strategy. For example, a real estate investment group may take a short-term “fix and flip” strategy. Others may buy and hold real estate, seeking steady cash flow from rental income and management fees. The collective resources of group members can provide access to more investment opportunities, such as off-market deals and additional financing options.
REIGs can invest in virtually any type of property, though many buy apartment buildings, rental homes, and commercial real estate. Some also invest in real estate debt.
Joining a REIG is similar to crowdfunding in that both involve people pooling their money to fund real estate investment opportunities. However, a key difference is that REIGs are individuals who come together to invest in real estate, whereas crowdfunding usually involves an online platform.
There are two main ways to structure a REIG:
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Partnership-based: In a REIG partnership, individual investors come together to pool funds. Group members who are general partners play an active role in buying and managing properties. The group may also have limited partners, who provide capital but aren’t directly involved with property acquisition and management.
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Corporation-based: Some REIGs are set up as limited liability companies (LLCs) or corporations. Under this structure, investors usually become shareholders in the corporation. However, the LLC or corporation makes major investment and management decisions with minimal involvement from shareholders. This structure tends to be a good fit for real estate investors seeking passive income.
Sometimes the terms “real estate investment group” and “real estate investment club” are used interchangeably, but they aren’t necessarily the same. Real estate investment clubs may be informal groups of investors who gather to network and learn from industry experts. Unlike a REIG, members of a real estate investment club may not actually pool their resources to invest.
REIGs and REITs, or real estate investment trusts, both own real estate or real estate-related debt. Each offers investors the opportunity to generate income and diversify their portfolios. But there are some important differences:
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Most REITs are publicly traded companies that trade on stock exchanges, while REIGs are private investment groups.
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You can buy a publicly traded REIT for whatever it costs to buy a single share. However, many REIGs have minimum investments between $5,000 and $50,000.
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REITs are more regulated and are subject to certain tax rules. For example, they’re required to distribute at least 90% of their taxable income to shareholders as a dividend each year. REIGs can take any business structure.
Your first step for investing in a real estate investment group is to find a REIG that’s a good fit for you based on your risk tolerance and investing goals. Some ways you can find one are:
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Attend networking events
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Ask successful real estate investors to recommend one
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Use sites like LinkedIn and Meetup
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Reach out to the National Real Estate Investors Association or your local REIA to find out about local networking
Once you’ve found a REIG that you think fits with your investment strategy, find out about the group’s minimum investment, as well as any membership fees or monthly dues it charges. Some groups have additional eligibility criteria, like investing experience or evidence of financial stability.
Be sure you understand the group’s structure and rules before you invest. You could also ask to attend a meeting or two in order to get a sense of how the REIG operates before you join.
It’s essential to understand the pros and cons of REIGs prior to investing. Here are some to consider:
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You can invest in properties and obtain financing terms that would be out of reach to you as an individual.
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You can invest in real estate and earn passive income while allowing a property management team to handle day-to-day issues.
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New investors may get the opportunity to learn from successful real estate investors.
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Because you’re pooling your money with others, you can spread your money across multiple investment properties, leading to more diversification.
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You may have limited control over how your money is invested.
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There may be a minimum holding period or restrictions on when you can withdraw your funds.
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You’ll likely need to put down at least $5,000, which can put REIGs out of reach if you’re trying to invest in real estate with little money.
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Management fees and monthly dues could eat away at your profits.
Once you’ve found a REIG you’re interested in joining, it’s essential to vet the organization. Here are some questions you should ask as part of your due diligence:
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What is the investment strategy, and what types of real estate does the group invest in?
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Does the REIG have a solid track record of generating profits?
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Does joining require a lot of time or involvement? Will you be expected to play an active role in decision-making?
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How does the group make money, and how do distributions work?
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What’s the minimum up-front investment? Does the group require dues or monthly fees?
How do you start a REIG?
To start a REIG, you’ll need to find partners who have similar investing goals and meet with an attorney to determine the appropriate structure for your group. You’ll need to establish eligibility criteria, along with rules for funding investments, distributions, and exits.
What’s the difference between a REIT and a REIG?
REIT stands for “real estate investment trust,” while REIG stands for “real estate investment group.” Most REITs are publicly traded companies, but a REIG is a private investment group that could be structured as a partnership, LLC, or corporation.
What is the minimum investment for a REIG?
A typical minimum investment for a REIG is between $5,000 and $50,000, but requirements vary. Some investor groups also charge ongoing expenses, like management fees and monthly dues.