How Real Estate Investment Groups Work
We provide an in-depth look into what real estate investment groups are and how you can get started in one.
By Emily Southey | 11 minute read
Real estate investment groups (REIGs) and real estate businesses go hand in hand, with the former operating as a version of the latter. Such groups are formed for the purpose of real estate investments and have employees, structures, and operations in place. Ultimately, they are a way for individual real estate investors to pool their money and create a larger portfolio than they otherwise would have. If you are an investor interested in joining a real estate investment group but want to learn more, keep reading.
Real Estate Investment Groups Defined
Real estate investment groups, which may also be referred to as real estate investing clubs, are individual businesses that aim to make profits from various real estate operations. These operations generally involve building a portfolio of real estate investments. However, there are many different forms of investing that a real estate investment group may focus on, from buying or selling properties to renting properties, flipping homes, or financing mortgages. How these groups function is by holding a pool of investor capital and a portfolio of investment properties, which together, are used to create returns for shareholders.
In most cases, the money that funds a real estate group comes from shareholders who earn returns based on their contributions. It is important to note that real estate investment groups are not required to abide by specific rules about how they must operate, which gives them a significant amount of flexibility. For example, due to this, real estate investment groups vary considerably in size, goals, portfolio, operations, and even members. Some groups might consist solely of real estate investors while others might incorporate investors with different skill sets, such as lawyers or contractors. However, generally speaking, real estate investment groups contain a minimum of 10 members.
One of the main advantages of a real estate investment group from an investor’s perspective is that it allows them to meet like-minded individuals with similar investment goals. Plus, it provides an opportunity to become part of a group that gives them a better chance of reaching the goals they collectively share. And in the process, they can learn from the expertise of others to become a better investor.
How Real Estate Investment Groups Operate
As mentioned, real estate investment groups vary in how they operate. However, the general rule of thumb is that you can join a real estate investment group so long as you have some money to invest or contribute. Most groups consist of no less than 10 members, and all members usually have real estate investing goals that align. For example, you will find real estate investment groups aimed at wealthy business people, retirees, women, and even college students. There are also groups that target a certain type of real estate or real estate investing, such as commercial properties or house flipping. There are no rules governing these groups, so you will find that they come in all shapes and sizes.
No matter which real estate investment group you want to join, it’s worth noting that they usually operate as follows: all members pool their money and make investment choices together. Some of these groups are less formal than others, while others have clear, stated objectives. Regardless, most real estate investment groups become legal entities where each member is a joint owner. This way, when your group begins buying or selling property, its name goes on the deed.
More formal real estate investing groups will have clear-cut rules for their members and may even elect officers or assign specific tasks to certain members. For example, some common roles in real estate investment groups include record keeping, property maintenance, communications, taxes, and sales execution.
Though some real estate investment groups favour in-person meetings or a mix of in-person and online communication, many are conducted entirely digitally at this stage, with decisions being made via email or online chat. The good news is that the internet has made it easier to find real estate groups in your area and to connect with members all over the world.
Further, to join a real estate club, most investors must pay a fee (this can be monthly or annually). Lastly, although real estate investment groups are focused almost entirely on real estate, they are not bound to this. Therefore, some groups may branch out and take advantage of other investment opportunities as they see fit.
“Real estate investment groups, which may also be referred to as real estate investing clubs, are individual businesses that aim to make profits from various real estate operations. These operations generally involve building a portfolio of real estate investments.”
Tips for Finding or Starting a Real Estate Investment Group
Learn how to find or start a real estate investment group near you by following the tips below.
1. Research thoroughly
Whether you are looking to join an existing real estate investment group or start a new one, the first step involves thorough research. Go online, learn more about how real estate investment groups work, and use search engines and social media to find existing groups in your area. You can also reach out to other real estate investors or professionals in your area for advice or attend a local networking event. Even if you plan on starting your own group, learning more about how these groups operate (for example, the types of investments they specialize in, how many members they have, or how much they charge in annual fees) can help you make decisions about your own group. It may also make you aware of a gap in the market. For example, you might notice that your city has multiple real estate investing clubs aimed at wealthy business people but none aimed at young professionals or university students. Once you’ve done ample research and have a good understanding of how REIGs operate and the current landscape of REIGs in your area, it’s time to move on to step 2.
2. Consider your REIG goals
The next tip is to consider your investing goals. Before you join an investment group, make sure you ask yourself all kinds of questions, such as:
- What type of real estate properties do you want to invest in?
- How large would you like your fund to be and how many members do you wish for it to include?
- How much money are you prepared to supply to join a group or how much money do you want each group member to contribute in order to join?
- What are your investment goals? How much money do you hope to earn and in what time frame?
3. Find like-minded partners
After you’ve narrowed down your REIG goals, it’s important to spend some time finding like-minded investors. This is important if you join a REIG but especially so if you want to start one from scratch. Take the time to connect and meet with other real estate investors, making your goals clear and learning about their goals as well. As your REIG grows, it will become increasingly important that you have a qualified management team so try to start with a solid foundation.
4. Market your group to the right audience
This final step is for those looking to start their own REIG and market their group to the right audience. For your real estate investment group to succeed, you must look for investors who will make meaningful contributions to your group — both financially and in terms of expertise. To ensure this, we suggest creating a marketing plan that attracts certain types of members. Popular REIG marketing strategies include social media, email campaigns, and blogs.
The Pros and Cons of Joining a Real Estate Investment Group
To help you determine whether joining a real estate investment group is right for you, we break down the pros and cons of REIGs below.
The Pros of Real Estate Investment Clubs
The main advantage of real estate investment groups is that they provide an opportunity for members to expand their investment portfolios beyond what they could have achieved on their own. Investing in real estate can be challenging, especially given the capital required to buy certain types of properties. But with REIGs, members can pool their resources and afford properties that were previously out of reach. Investing in multiple properties at once is also typically easier (and safer) through groups. Further, REIGs make it easier to outsource property maintenance and divide tasks among members.
Another pro of real estate investment clubs is that they allow people to gather and learn from like-minded individuals. Oftentimes, REIGs will host meetings with guest speakers or professionals who have particular expertise on a topic. For example, a guest speaker may cover a topic like the basics of comparative market analysis or how to find and vet quality tenants for a rental property. Therefore, the resources and knowledge that can be acquired through these groups is another advantage, as it serves to improve the investing skills of each member.
In sum, a few main pros of real estate investment groups are:
- New-found investment opportunities: Pooling capital with other members makes real estate investing more affordable, providing an opportunity to invest that a person may not have had otherwise.
- Expansion of knowledge and expertise: Meeting like-minded investors and attending meetings with guest speakers or other professionals can help each member expand their knowledge of real estate.
- Property management is more convenient: Since REIGs have multiple members, the tasks commonly involved with investing in real estate can be split up. This makes it a more convenient, less stressful form of investing. Such tasks may include paying property taxes, record keeping, property maintenance, and more.
The Cons of Real Estate Investing Clubs
As with anything in life, joining a real estate investment group has potential drawbacks. Since groups have multiple members, you cannot make unilateral decisions. For example, if you needed some quick cash and wanted to sell some equity, you would need to consult with the other group members and get them on board. This lack of freedom can be frustrating for some investors.
Further, REIGs may be more prone to emotion-based decision-making, as members may decide against a good business decision to avoid hurting the feelings of someone else in the group. These relationship dynamics are another downside of real estate investment groups and is a factor worth considering before joining one.
Finally, some real estate investment groups charge high monthly or annual fees, which will cut into your returns. Determining whether this fee is worth it based on the group’s current investment portfolio and your projected returns is an important step before deciding to join a REIG.
Overall, the main cons of real estate investment groups are:
- Little freedom or flexibility: All decisions must be approved and supported by the group, making it difficult to make quick decisions, such as selling your equity in an emergency. Remember that real estate in any form, whether you invest individually or via a group, is not a liquid asset.
- Emotional decision-making: When you’re part of a REIG, emotions can enter into the decision-making process, with some members voting a certain way based on how other members might feel. As most investors know, emotion and investing shouldn’t mix.
- Pricey fees: Some real estate investment groups charge high fees, which will minimize how much money you earn from your investments.
Frequently Asked Questions
What type of real estate investment groups are there?
There are all kinds of real estate investment groups out there. Some target specific groups of people, such as college students, professionals of a certain income level, women, or people of a certain age, such as retirees. Meanwhile, others target members based on the types of investments they make (for example, mortgage financing, house flipping, rental properties, commercial properties, and more). Therefore, if you have strong preferences in the type of real estate portfolio you want to invest in, you might choose a group that specializes in a certain type of real estate investing. Some groups are also set up to focus on real estate investments in specific locations, such as one North American city or a certain state or province. Ultimately, real estate investment groups come in all shapes and sizes, so if you want to join one, it’s important to do some research and determine which one is right for you.
Is it easy to join a real estate investment group?
Yes, it is relatively easy to join a real estate investment group. The first step is finding a group to join. This process has never been easier thanks to the internet. From online real estate forums to social media websites like LinkedIn, there are many ways for prospective investors to find groups near them. From there, once you have found a group you are interested in joining, you simply have to ask if they are currently accepting members and learn more about their requirements. In most cases, real estate investment groups can be joined as long as you are willing to contribute the necessary capital. How much money you must supply varies between groups, as each has its own rules and bylaws. Beyond the capital requirements, there may also be monthly or annual fees to account for.
How long a time should I join a real estate investment group?
You can join a real estate investment group for as short or long a time as you like. However, real estate investments in general favour the long-term investor rather than the short-term investor. So if you decide to join a real estate investment group, we recommend remaining in that group for a minimum of a few years to reap the benefits.