Definition of real estate investment group (REIG). Real estate investment clubs used to be exclusively face-to-face, a group of five to ten investors meeting every month. With social media and the Internet, as many groups are formed online as in person. In most cases, members pool their money and make investment decisions together.
Often they are set up as partnerships. Some clubs have their own objectives. These may be value investing or investing for income. In the case of real estate investment groups, members focus solely on investing in real estate.
One example is real estate group investments, also known as real estate syndications. Through real estate group investing, you can invest your money in real estate together with a group of other passive investors, but you do not have to perform any of the day-to-day tasks of property management. You just sit back and collect the monthly cash flow distribution cheques. The least involved and possibly lowest risk type of investment is the real estate investment trust (REIT).
With a REIT, a group of investors pool their money and create a corporation in order to buy more lucrative properties, or a series of properties. Participants buy shares in the corporation and receive dividends as the corporation's profits increase. The purchase of a REIT spreads the risk of any one property, so that no one person is on the line to sink or swim. However, this also means that several people share in the benefits of a property, rather than it all going to one investor.
Real estate syndication (or property syndication) is a partnership between several investors. They combine their skills, resources and capital to buy and manage a property that they could not otherwise afford. When discussing how to buy a property with multiple investors, it is important to be aware of the potential disadvantages. Some of these cons are outweighed by the many advantages, and others can be avoided simply by taking the right steps.
Just as important as "How to buy property with multiple investors" is the question "With whom should I buy property? You will want to interview thoroughly, ask the question, and get to know the people you are considering doing business with. In helping others learn how to buy property with multiple investors, we cannot express enough that finding a rental property below market value should be your priority. Within your team, determine who is the most experienced investor when it comes to finding the best rental markets and property deals. Getting a property below market value can increase your return on investment substantially.
These types of properties are often distressed and are brought back to value through renovations and repairs. Read a couple of books with your real estate club and you will have everything you need to get started. Active investors have more control over day-to-day decisions, such as what renovations are done, which property managers are placed, etc. Real estate markets in most countries are not as organised and efficient as markets for other more liquid investment vehicles.
The new source of funds has been a great relief for developers and is enabling individual investors to earn large returns that were previously only accessible to the wealthy. This kind of management headache is not an issue with real estate crowdfunding, as someone else is managing your portfolio, but it is still an important part of your real estate analysis. If any of the members have a co-investment company, they will need all the usual liability and property insurance that comes with real estate investing. Not all licensed real estate agents are members of the NAR or a local real estate board or have access to the MLS.
While it may seem a little confusing to move forward in purchasing real estate with other investors, in reality, it can make the process much easier, as well as safer. An investor may be 100 per cent in the beginning, but circumstances can change the situation quickly. Scroll through the rest of the post for a step-by-step look at real estate investment analysis, property search, real estate strategies and how to avoid major pitfalls. Examples of common tasks that active investors take on are initial research, locating the best rental market, viewing potential properties, negotiations, working with contractors, etc.
Depending on the total amount needed, sometimes a real estate syndication can involve hundreds of passive investors. Thus, real estate investors with credit problems or who do not want to minimise the size of the down payment as part of their overall investment strategy may look for sellers who have an existing FHA loan on their property. Investors looking for low capital requirements can explore alternative financing arrangements as part of a property purchase (e.g. seller financing, seller subordination, private equity sources, etc.).
These clubs can be a great place to learn and network with other real estate entrepreneurs and, for many, have been a key factor in the growth of their business.