Real Estate Investment Group (REIG): Definition and How They Work

A real estate investment group (REIG) is an entity formed by two or more investors that pools capital to invest in real estate. REIGs buy, renovate, manage, finance, or sell properties while sharing profits, losses, and responsibilities among members. They are distinct from real estate investment trusts (REITs) and often operate with greater structural flexibility.

Key takeaways

• REIGs pool investor capital to purchase and manage real estate assets.
• They are typically structured as partnerships or corporations and often pass income through to investors on Schedule K‑1.
• Unlike REITs, REIGs are not bound by REIT tax rules (for example, the 90% dividend requirement) and face fewer regulatory disclosure requirements.
• Benefits include diversification and professional management; drawbacks include limited liquidity, fees, and manager risk.

How REIGs work

Members contribute capital to an operating entity that acquires and manages properties—commonly multiunit residential or commercial assets. The operating company typically:
* Sources deals, acquires properties, and handles operations (leasing, maintenance, property management).
* Collects rents and pays expenses, then distributes net income to investors according to the partnership or corporate agreement.
* Charges management or performance fees as defined in the governing documents.

REIGs can pursue many activities: buy-and-hold rentals, property flips, mortgage lending, property management services, or a mix of strategies.

Common structures

Partnership
* Most REIGs are structured as partnerships (general or limited).
* Partnership income “passes through” to partners, who receive Schedule K‑1s and report income on their personal (Form 1040) or corporate (Form 1120) tax returns.
* Partnership agreements specify capital commitments, distribution policies, fees, voting rights, and liquidity rules.
* Minimum initial investments vary widely; some groups accept $5,000–$50,000.

Corporation
* A REIG can also operate as a private or public corporation and sell equity shares.
* Public entities must meet SEC reporting requirements; private companies are governed by securities regulations such as Regulation D when applicable.
* Corporations may offer different share classes with varying voting rights and dividend policies.

Crowdfunding platforms
* Online real estate crowdfunding platforms sometimes function like REIGs, pooling investor capital into specific projects or funds.
* These platforms can broaden access to real estate for accredited and non‑accredited investors but come with platform‑specific fees and risks.

Investing through a REIG

Why investors use REIGs:
* Access professional management and economies of scale.
* Gain exposure to real estate without directly owning or operating each property.
* Achieve diversification across multiple properties or strategies.
Potential returns come from rental income, appreciation, management fees, and mortgage financing activities.

Important considerations:
* Diversification can reduce exposure to localized market downturns.
* Fees and the quality of the management team materially affect net returns.

Advantages and disadvantages

Advantages
* Pooled capital enables larger, diversified investments.
* Operational responsibilities handled by the group’s manager(s).
* Flexible activities—REIGs can pursue many investment strategies.

Disadvantages
* Limited liquidity—agreements often restrict withdrawals and transfers.
* Management and performance fees can erode returns.
* Success depends on the experience and integrity of the managers; poor management increases risk.

REIGs vs. REITs

REIGs
* Typically private partnerships or corporations investing directly in properties.
* Income often distributed via K‑1s; fewer public disclosure requirements.
* Less liquid; may require larger minimum investments and longer capital commitments.
REITs
* Often publicly traded companies that must meet tax and regulatory rules (including distributing ~90% of taxable income as dividends).
* Provide share liquidity through public exchanges and more standardized investor protections and disclosures.
* Allow smaller investments via single shares but offer limited direct control over property-level decisions.

How to find and join a REIG

• Network with local real estate investor associations, meetups, or online professional communities.
• Research groups’ track records, investment focus, fee structures, and governance documents before committing.
• Joining typically requires signing an agreement and meeting the group’s minimum capital requirement.

Typical capital requirements

• Minimum investments vary by group and structure—commonly from several thousand dollars to tens of thousands.
• Review bylaws or offering documents for fees, capital calls, and withdrawal restrictions.

What to look for in a REIG

Evaluate these elements before investing:
* Track record and examples of past deals.
* Transparency of financial reporting and availability of performance metrics.
* Experience, qualifications, and reputation of the management team.
* Clear governance: fees, distributions, exit mechanisms, and investor protections.
* Regulatory compliance and any history of disciplinary actions.

How to start a REIG

1. Research market opportunities and regulatory requirements.
2. Define the investment strategy, target assets, fee structure, member requirements, and governance rules.
3. Assemble a management team with relevant skills (acquisitions, property management, finance).
4. Create legal documents (partnership agreement or corporate charter, subscription agreements) with professional legal and tax advice.
5. Solicit members and capital, then source and acquire properties consistent with your strategy.

Conclusion

REIGs offer a way to invest in real estate through pooled capital and professional management, providing access and diversification that may be difficult to achieve individually. They carry tradeoffs—limited liquidity, management risk, and fees—so careful due diligence on structure, people, track record, and documents is essential before joining or starting a REIG.