A real estate investment group, or REIG, might be the best option for you if you’re trying real estate for first-time investing, say with just 25K. Or have a tight schedule. But money is just plain tight. Or would like to invest in bigger projects but lack the right credit score. With competitive returns and fewer requirements than traditional investment, a REIG might be a simple way to invest in real estate. However, a REIG is not for everyone, so think long and hard about your objectives and available funds before deciding to join a group. Find out how REIGs function and if they are appropriate for you.
Describe a REIG.
A REIG is a collection of private investors who work together to purchase properties that provide income by pooling resources such as capital, expertise, and/or time. Each group will have a different investing strategy employed by the REIG. They may employ any number of common real estate investing techniques, including buying commercial property, holding mortgage notes on a property, rehabbing and renting out properties, and fixing and flipping.
Each REIG has a unique organizational structure and may or may not charge membership fees. Some just demand a very small amount of active involvement, with a board or lead person handling all the decision-making and day-to-day management. Other organizations might function more like partnerships, where each participant has duties and a voice in how the properties are run.
One thing all REIGs have in common is that they pool money from various investors and members to buy and invest in real estate, giving participating investors a return in the form of a profit share or interest payment.
How REIGs operate with your 25K
When you participate with a REIG, you can receive shares or interests in a property or numerous properties without tying up as much cash or needing to secure your own financing, unlike when you invest individually because money is pooled between investors. Additionally, the group divides up the management duties for the property or investment portfolio.
Although there may be a lead organizer who assists in administering the asset, in many respects the group as a whole, rather than a single person, is in charge of purchasing, managing, and disposing of the property.
Despite their superficial resemblance, a REIG is not a real estate investment trust (REIT) or a crowdfunding real estate enterprise. They both generate most of their income from real estate and return the majority of it to the parties involved by investing the bulk of the pooled funds in real estate or real estate debt.
A REIT differs from a REIG, though, in that it is a taxable corporation run by a board of directors and organized as a big company with stringent requirements and rules to obey. For instance, a REIT must have at least 100 investors by the end of its first year of operation and cannot have more than five investors owning more than 50% of the company. There are no size limitations for a REIG, nor are there any rules governing majority ownership, minimal distributions, or other thresholds.
What benefits and drawbacks does a REIG offer?
A REIG allows you to use the combined buying power and expertise of the group while having your investment funds backed by actual real estate. You individually have more time to work on other projects, jobs, or investments since one or more group members maintain the property. If the REIG is in good standing, this can bring about some risk and security peace of mind. Being a member of a REIG is a private arrangement that is not governed by any government body, so there is always the possibility of poor administration or shady intentions.
Regrettably, REIGs may be a component of a real estate investment scam in which the REIG’s founder engages in dishonest real estate transactions or developments. Therefore, it is crucial for every investor thinking about investing in a REIG to conduct due diligence on the group, the securities held inside the group, the REIG’s organizational structure and membership agreement, as well as the person in charge of managing and supervising the group’s operations. Conducting background checks, verifying the group’s assets in public records, and communicating with current and former members of the group are all examples of due diligence.
Where do you go to locate REIGs to invest in?
Online searches might seem like the quickest way to find a REIG, but they sometimes return for-profit organizations rather than true REIGs you want to invest in. These organizations are generally aiming to collect membership fees in exchange for you using their name when starting your own club. You may identify and connect with investors searching for the same thing on networking sites like Meetup, LinkedIn, or even Craigslist if you’re trying to start your own REIG.
The National Real Estate Investors Association (REIA), a nonprofit with local chapters all across the nation, is another fantastic, tested resource. It offers educational resources, networking opportunities, and monthly meetings tailored to your region. Even though not every REIA branch will have a REIG, you can use them as a jumping off point to either network and form your own or locate existing groups in need of new members.
Crowdfunding might be a better choice for you if you don’t care if the group is local and are looking for a bigger, more established REIG.