A REIG (Real Estate Investment Group) is a group of private investors who invest almost exclusively in real estate by pooling money, knowledge, and/or time to acquire properties that generate income (Brummer, Millionacres). Investment strategies for REIGs will differ based on each group’s specific strengths. 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.
Pros of a REIG
A REIG is a way for you to have your investment funds backed by physical real estate while allowing you to leverage the collective buying power and experience of the group. Additionally, investing in real estate as a group can give you a less “hands on” approach to real estate investing, or more, depending on your desires and the strengths of your group. Furthermore, a REIG is a form of “diversification” in the sense that your thoughts about the financial incentives of an acquisition may be different than your partners in the group. Of course, this can be a negative if you are unable to persuade others investors in the group and the property turns out to be a successful investment. However if you surround yourself with like-minded investors, which is generally the case for most REIGs, this is unlikely to occur often. Going back to buying power, groups of investors can pool a very substantial amount of money together. This would in turn allow them to invest greater sums of cash and diversify their investments over a greater number of real estate properties. Conversely, an individual investor may only have enough capital to put into one – or a few – properties that may wind up taking an unexpected downturn. Finally, there’s a benefit to having fellow investors with the same stakes you do because you have the opportunity to learn from them. You would be able to potentially use some of those successful strategies in your own personal real estate investments.
Cons of a REIG
Many cons to a REIG can also be viewed as strengths, depending on the amount of weight you pull in it. For example, a more “hands-off” approach to investing through a REIG can turn detrimental if the individual(s) responsible for the “hands-on” tasks do a poor job. Additionally, since REIGs pool your investment money with others, you lose out on some profit prospective with it being shared throughout the group. To the contrast, this could be viewed as a way to mitigate your conceivable losses – as mentioned in the strengths – but skilled real estate investors rarely have a pessimistic view of investments they are willing to enter into. While some view this as insignificant, the tax structure and fees associated with REIGs similarly lower your bottom line profit. Along the same lines, due to regulations and commonplace agreements signed between the parties, pulling your money out of the REIG can be burdensome and costly. Finally, many investors are prone to different management styles, have different investment goals, and differ in many other germane ways. Conflicts arising from disagreements between members in a REIG can lead to not only unfavorable financial outcomes, but it can go as far as breaking up the REIG.
Concisely, REIGs are a good fit for novice or expect real estate investors, as well as everything in between. From our perspective, the concept seems like it would be a better fit for those looking to enter the real estate market, rapidly expand their presence in that market, or if you have unique knowledge, but do not have the cash saved to personally invest in real estate yet. Reviewing the pros and cons alone, unfortunately, does not provide enough guidance as to whether or not this is the right investment vehicle for you. As with most financial investments, REIGs can be beneficial or detrimental for you, completely dependent on your financial situation, knowledge of the real estate market, and more. We do believe that an invaluable positive to REIGs is the knowledge potential from other investors in your group. Some of the most successful investors from different parts of the globe have said that intellectual capital can prove to be exponentially more valuable than simply having excess cash in a savings account, with no unique or constructive ideas on how to put that capital to use in order to maximize a positive return.