If you're new to real estate investing, don't have a lot of time or money to invest, or would like to invest in larger projects but aren't an accredited investor, a real estate investment group, or REIG, may be the ideal solution for you. A REIG can be an easy way to invest in physical real estate, receiving competitive returns without many of the demands traditional investing requires. But a REIG is not for everyone, and you must carefully consider your goals and resources before committing to joining a group. Learn how REIGs work and whether they're right for you.
What is a REIG?
A REIG is a group of private investors who invest primarily in real estate by pooling money, knowledge, and/or time to acquire properties that generate income. The investment strategy used by the REIG will vary by group. They may use any number of typical real estate investing strategies like fixing and flipping, rehabbing and renting, buying commercial real estate, or holding or creating mortgage notes for a property.
Each REIG is structured differently and may or may not have membership fees. Some require very little active participation, with a board or lead person making all the decisions and taking care of the ongoing management. Other groups may operate as more of a partnership, where all members have responsibilities and a say in how the properties are managed.
One common thread among all REIGs is that money is grouped together from multiple members and investors and used to purchase and invest in real estate, providing a return, such as a profit split or interest payment, to the participating investors.
How REIGs work
Investing with a REIG is different from investing individually because money is pooled between investors, allowing you to receive shares or interest in a property or several properties without tying up as much cash or having to obtain your own financing. Additionally, the responsibility of the management of the property or investment portfolio is shared among the group.
There could be a lead organizer who helps manage the asset, but in many ways, the sole responsibility of acquiring, managing, and disposing of the property is handled by the group, not an individual.
A REIG is not a real estate investment trust (REIT) or crowdfunding real estate venture, although superficially, they may appear similar. They both invest the majority of pooled funds in real estate or real estate debt, earn income primarily from real estate, and distribute most of the income back to the parties involved.
However, a REIT distinguishes itself from a REIG in that it's a taxable corporation operated by a board of directors and structured as a large organization with strict qualifications and regulations to follow. For example, a REIT must have a minimum of 100 investors by the end of their first year as a REIT and have no more than 50% of the company owned by five or fewer investors. A REIG has no restrictions on size, and there are no guidelines as to majority owners, minimum distributions, or other thresholds.
What are the pros and cons of a REIG?
A REIG is a way for you to have your investment funds backed by physical real estate while you leverage the collective buying power and experience of the group. Since one or more members of the group manage the property, you personally have more time to work on other tasks, jobs, or investments. This can offer some peace of mind when it comes to risk and security, but only if the REIG is of good standing. Joining a REIG is a private agreement not regulated by any government agency, so there's always the risk of improper management or dubious motives.
Unfortunately, REIGs can be a part of a real estate investment scheme in which the leader of the REIG is partaking in fraudulent real estate investments or developments. So it's extremely important for any investor considering participating in a REIG to do their due diligence on the group, the investments held within the group, the structure and legal contract of the REIG and its members, and the person who manages and oversees the group's activities. Pulling a background check, confirming assets held by the group in public records, and speaking with current and past group members are all ways to do due diligence.