What is a Real Estate Investment Group?

What is a Real Estate Investment Group?

Let me tell you directly: a real estate investment group, or REIG, is a business that puts most of its effort and money into real estate. If you're looking for profits, these groups might buy, renovate, sell, or finance properties. They often purchase multiunit buildings, sell units to investors like you, and handle the administration and maintenance themselves. Remember, REIGs don't elect to be or qualify as real estate investment trusts (REITs).

Key Takeaways on REIGs

Here's what you need to know upfront. A REIG is an entity with at least two partners focused on real estate. Typically, a company in this setup buys or builds apartment blocks or condos and sells them through the group. They don't qualify as REITs, so they're not bound by those rules. Most are organized as partnerships that pass income through K-1 tax documents. One clear benefit is pooling capital for bigger investments.

Understanding REIGs

REIGs involve several partners or private shareholders who provide a pool of capital, giving you greater ability to invest broadly. They focus on real estate but aren't limited to just properties, so they can structure their business in various ways or pursue other aligned opportunities. This means they might handle property financing, flipping, leasing to clients or management companies for rental income, or selling units while keeping control of management. Generally, there are no limits on what a REIG can do, though they market themselves as such to help investors like you find them easily.

The goal here is straightforward: REIGs aim for monthly cash flows from real estate investments.

Investing Through REIGs

Investing in real estate appeals to many because it offers multiple ways to earn returns. REIGs might buy stakes in apartment buildings, rental homes, commercial buildings, or units, earning from mortgage lending, rentals, or management fees. They often attract high-net-worth individuals who want real estate exposure without managing properties themselves. If you're someone who manages single rentals or flips houses, a REIG lets you buy properties through an operating company that handles collective management and marketing, taking a percentage of the rent in return.

Diversification is important; it can help you avoid big losses in economic downturns or weak markets. As a REIG partner, you typically put up more initial cash than in other investments, but you might see greater returns thanks to pooled resources.

The Structure of REIGs

Don't confuse REIGs with REITs, even though people mix up the acronyms. REITs, created by Congress in 1960, must produce financial statements, follow tax laws, and distribute 90% of profits as dividends. REIGs can have any structure, but partnerships and corporations are common.

Partnership Structure

In a partnership, two or more people own the business and share profits, losses, and debts proportionally to their investment. Partnerships aren't taxed directly; income passes to partners via K-1 forms, which you report on your personal or corporate taxes. You don't have to manage the business actively. Agreements cover minimum investments, fees, distributions, and voting. Some involve collaboration on decisions, others leave it to executives who source deals. Investments can start from $5,000 to $50,000, pooling funds for shared properties.

Corporation Structure

You can form a corporation, public or private, for a REIG. Public ones are governed by the SEC and must provide transparent quarterly statements. Incorporating lets you sell equity shares representing part of the company's value. Management teams run them, but shares can have voting rights giving you some say.

Crowdfunding in REIGs

Online crowdfunding platforms can function as REIGs, structured as partnerships passing income via K-1s. These make it easier for accredited and non-accredited investors to get involved. Platforms like Fundrise let you invest in debt financing or equity in properties, offering diversification and competitive returns, though with higher risks.

Advantages and Disadvantages of REIGs

REIGs diversify investments to maximize profits, using pooled resources for multiple ventures that can generate larger returns. When managed by pros, they lower risk and handle market changes well, with few operational limits. However, agreements might limit when you can access your money, reducing liquidity. Fees can be high, especially in slim profit times, and success depends on skilled decision-makers—poor management can lead to big risks.

REIGs vs. REITs

Both are ways to invest in real estate, but REIGs are less liquid than REITs, which trade on exchanges, requiring longer commitments for direct property investments. REIGs might give you more control over decisions, while REITs are professionally managed with all choices made for you. REITs face heavy regulation, including SEC disclosures and 90% dividend payouts, whereas REIGs have fewer rules. REIGs often need higher minimum investments compared to buying single REIT shares. Analyze their performance and trends to decide what's right for you.

Finding and Joining REIGs

You can search online for REIGs or connect via LinkedIn or groups like the National Real Estate Investors Association. As a beginner, join a local group for better connections and regional insights. To join, it might just involve signing an agreement and paying dues. The required money varies, often $5,000 to $50,000 minimum, with bylaws setting fees and rules.

What to Look for in a REIG

Evaluate a REIG by its track record of successful investments, transparency in operations and finances, and the management's experience. Review financial statements for stability and ensure regulatory compliance without past issues.

Starting Your Own REIG

Research thoroughly and consult professionals before starting. Create a plan for operations, rules, fees, meetings, and investment types. Solicit experienced members and market to investors once formed.

The Bottom Line

Real estate investing can be profitable but tough alone. REIGs let you invest without full commitment or sole funding. If you're interested, research groups that match your goals.