One of the reasons that investing in real estate is a team effort is that there are only so many deals you can do on your own until you eventually begin to plateau.
Participating in real estate investing groups can help you continue to grow a rental property portfolio by participating in more investments while minimizing potential risk by investing smaller amounts of capital. It will also give you the opportunity to network with more successful investors because, just like with golf, there’s always somebody on the course who is better than you!
If you’ve been considering joining a group but aren’t sure where to begin, keep reading to learn how to find and vet a good real estate investing group.
- Real estate investment groups (REIGs) are similar to crowdfunding or real estate investment trusts but on a much smaller and more intimate scale.
- Real estate investing groups can be formed for various reasons, such as investing in single-family rental (SFR) homes or purchasing and rehabbing distressed properties needing significant repairs.
- The benefits of joining an REIG include diversifying investments and learning how real estate investment strategies are implemented.
- Before joining a real estate investing group, be sure to ask about the kinds of investments the group has already made, what historical returns are, and how many active members belong to the group.
Why join a real estate investing group?
An REIG is formed by private real estate investors to pool money to invest in real estate. In a sense, real estate investing groups are similar to a crowdfund or a real estate investment trust (REIT) but on a smaller and more personal level.
Also known as a real estate investing club, an REIG can be formed for a variety of ventures. For example, an REIG could be created to buy and renovate a single-family home, reposition an old office building into individual rental units, or provide financing to other investors.
Members of an investing group could share in the recurring net profits generated from rental income, profit from equity appreciation when a renovated property is sold, collect property management fees, or gain interest income by loaning money to other real estate investors.
One of the most common entity structures for a real estate investing group is a limited liability corporation (LLC). When an LLC is used to invest in real estate, income or losses flow through to each group member and are generally treated as passive income (or loss) for tax purposes.
Benefits and Drawbacks of REIGs
Here are some of the benefits—and potential drawbacks—to consider before joining and contributing money to an REIG.
Benefits of REIGs
- Network and learn the ropes from other, more experienced investors.
- Participate in deals that are out of your comfort zone, such as rehabbing a rental property or building a new home from the ground up.
- Pool investment capital to minimize risk and pursue diversification.
- Generate recurring income and profits when a group investment is cash-flow positive or sold for a net gain.
- Hear industry experts speak on topics such as financing rental property, prospecting for off-market listings, and understanding landlord-tenant laws.
Drawbacks of REIGs
- An REIG with a larger number of members means each investor has a smaller piece of the pie, which may limit the size of cash returns.
- On the other hand, a smaller group may require a higher initial investment per member.
- While working with fellow investors has its advantages, one potential drawback is personality conflicts or disagreements on investment strategy.
- Members of an REIG may be subject to capital calls that require more money to be contributed if a project doesn’t go according to plan.
- Capital invested in an REIG is usually illiquid, which means an investor may be unable to get money out until the project is completed.
Where to find an REIG
Local and national real estate investing groups offer education, networking, and group investing opportunities, and some investors join more than one group.
Local groups offer the chance to meet other members face to face, have a more intimate feel, and generally make investments in the local community. Joining a national group can be a good way to gain access to a bigger pool of real estate professionals and experts. Larger groups may also require a lower initial investment from each member.
Here are some resources for finding an REIG.
Roofstock Academy offers the best of both worlds, with education and networking available in 3 membership plans. The Workshop and Mastermind plans include hours of exclusive lectures, 1:1 coaching sessions, entry to a private investor community, exclusive Slack channels, and forum access.
Members leverage the experience and knowledge of more seasoned investors to learn how to create a successful process for analyzing, acquiring, and managing rental properties without getting emotionally involved and making mistakes that may hurt returns.
REIClub is one of the premier investing websites on the internet and an ideal community for first-time buyers and experienced investors alike. Resources include articles and videos on real estate investing, resources for hard-money lending, cash-flow clubs, and a list of local real estate clubs for all 50 states, plus Washington, D.C., and Canada.
The National Real Estate Investors Association (REIA) has been promoting and educating investors since 1985. REIA boasts more than 120 local chapters and associations with more than 40,000 members.
CRE Online maintains a list of real estate investment clubs in each state, plus international destinations like Canada, Costa Rica, and Mexico. Local real estate investments clubs listed on the platform can be a great way to meet and network with fellow real estate investors and service providers in your area.
Form your own REIG
If you can’t find what you’re looking for, another option is to form your own REIG. You’ll have the opportunity to attract members with like-minded investing strategies and register your group with REIClub and the National REIA.
Keep in mind that creating an REIG will require a lot of time, and there may be a significant learning curve unless you’re an experienced real estate investor who understands and enjoys managing other people.
How to vet an REIG
As with any other investment opportunity, some REIGs are better than others. Here are 9 questions to ask before joining and contributing money:
- How many active investors are part of the group, and what is their experience level?
- Does the group have a formal legal structure, such as an LLC, with an operating agreement to help protect your rights, or do members operate on a handshake agreement?
- Has the group made other investments already and, if so, what are the historical returns?
- How and when are funds distributed to club members?
- Are members required to be active and perform certain duties, such as leasing and property management, or is it allowable to invest in the group as a silent partner?
- What is the risk tolerance of the REIG, and does it match yours? Some investments may take longer than planned to generate positive cash flow or may require members to contribute additional working capital.
- Does the group’s investment strategy align with yours? For example, is the objective of the REIG to buy and hold a rental property over the long term, or is the group looking for homes to fix and flip with the hope of generating a short-term gain?
- What are the group’s membership fees, and will you earn enough income from the group’s investments to more than offset the dues and allow for a profit?
- Are there other learning opportunities, such as educational and networking events hosted by other real estate professionals?
Successfully investing in real estate is about who you know and what you know, which is one of the many reasons to consider joining an REIG. By pooling capital with other investors who have the same strategy as yours, you’ll have the opportunity to participate in more deals, diversify an investment property portfolio, and learn the rental property business from other successful, experienced real estate investors.