A real estate investment group (REIG) operates as a business that directs a significant portion of its resources and funds toward real estate ventures. In pursuit of profitability, real estate investment groups may opt to acquire, refurbish, divest, or finance properties. Typically, they acquire multiunit properties, distribute units to investors, and assume responsibility for property management and upkeep. Unlike real estate investment trusts (REITs), REIGs neither opt for nor meet the qualifications of REIT status.

 

 

ESSENTIAL POINTS

 

A real estate investment group (REIG) constitutes a group of two or more partners with a focus on real estate ventures. In a conventional real estate investment group setup, a firm purchases or constructs a series of apartment complexes or condominiums and sells them to others through the company.

 

REIGs do not qualify as REITs and are not bound by REIT regulations.

 

REIGs can adopt various organizational structures, with partnerships being the most common, allowing income pass-through as reported on K-1 tax forms.
Pooling capital for investment purposes is a significant advantage of REIGs.
 

 

Understanding REIGS
 

REIGs involve multiple partners or private stakeholders who contribute to a pooled capital fund, enabling broader investment opportunities. While real estate remains their primary focus, they are not restricted to real estate-only investments, giving them flexibility to explore diverse business strategies.

 

Consequently, REIGs may involve themselves in property financing, property flipping, leasing properties to clients or property management firms for rental income, or selling units while retaining managerial control. Generally, there are no constraints on the activities of REIGs, although most identify themselves as such to facilitate investor recognition.

 

The primary objective of a REIG is to generate monthly cash flows from real estate investments.

 

 

REIG Investment Strategies

 

Investing in real estate appeals to investors due to its various avenues for generating returns. REIGs may acquire interests in apartment complexes, rental properties, commercial real estate, or commercial units. They can earn revenue from mortgage lending, rental income, or property management fees. High-net-worth investors often find REIGs attractive as they provide an opportunity to invest in real estate without the hassle of property management.

 

 

Additionally, REIGs attract investors who independently manage single rental properties or are involved in house flipping. By operating through an operating company, investors can purchase one or more properties collectively managed by the company, which handles marketing and maintenance in exchange for a percentage of monthly rent.

 

Diversification can mitigate significant losses during economic downturns and soft real estate markets.

 

One of the key benefits of REIGs is the pooled capital they receive as either partnerships or corporate entities. While REIG partners typically make higher initial cash contributions compared to other real estate investments, they often experience greater returns.

 

 

The Structure of REIGS

 

REIGs and REITs are often mistakenly used interchangeably despite their distinctions. Established by Congress in 1960, REITs are subject to specific tax laws, must issue financial statements, and are required to distribute 90% of their profits as dividends annually. In contrast, REIGs can adopt any business structure, although partnerships and corporations are the most prevalent.