What Is a Real Estate Investment Group (REIG)?
A real estate investment group (REIG) refers to an entity that focuses the majority of its business on investing in real estate. In search of profits, real estate investment groups may choose to buy, renovate, sell, or finance properties. Real estate investment groups commonly buyout a property and sell units to investors while taking responsibility for the administration and maintenance of the property. Typically, real estate investment groups either do not elect or qualify for the real estate investment trust (REIT) status.
- An REIG can be any entity with multiple partners that focuses the majority of its business on real estate.
- REIGs are not subject to any specific real estate entity limitations or requirements.
- REIGs can be structured as any type of business entity they choose though many are organized as partnerships that pass-through income reported on K-1 tax documents.
Understanding Real Estate Investment Groups
Real estate investment groups are comprised of multiple partners or shareholders. Having multiple sources for capital investments provides a greater pool of capital and a greater ability to invest more broadly.
Real estate investment groups focus the majority of their business on real estate, but they are not necessarily subject to any specific real estate entity status. As such, they have the flexibility to structure their business in several ways, and they have the flexibility to make real estate investments as desired. Also, real estate investment groups can offer property financing, flip properties, lease properties to clients or property management companies for a portion of rental income, or sell units of a property while maintaining overarching control. In general, there are no specific limitations on the activities a real estate investment group can be involved in. Many REIGs will market themselves as such to make it easier for investors to identify them.
Investment real estate can be an attractive investment because of its multi-dimensional return potential. Real estate investment groups seek to take advantage of a multitude of real estate investment opportunities by creating a portfolio of real estate investments.
In general, there are several ways real estate investment groups produce returns. An REIG may choose to invest in apartment buildings, rental homes, commercial buildings, or commercial units. It may earn income from mortgage lending, rental properties, or property management fees. REIGs often appeal to high-net-worth-investors who look to invest directly in real estate but not assume full property management responsibilities. REIGs also attract investors who manage single rental properties on their own or who are into flipping houses.
Overall, one of the greatest advantages for REIGs is the pooled capital they obtain from a multi-partnership structure or a corporate equity unit-based capital structure. Investing REIG partners typically must put up more cash as an initial investment than other real estate investment opportunities; however, they typically see greater returns.
Real estate investment groups and real estate investment groups are terms used interchangeably; however, they carry different meanings. A real estate investment group is a business that creates financial statements and follows applicable tax laws. REIGs, on the other hand, can choose to take on any entity structure, with the two most common being partnerships and corporations.
A partnership is a business owned by two or more people, who share in profits, losses, and debts. Partners take stakes in the business proportionate to their investment. Under US tax code, partnerships are not taxed. Rather, partnerships pass-through all of their income to the partners and report this income on a K-1. Partners receiving a K-1 must individually file their partnership income on Form 1040 if they are an individual or on Form 1120 if they are a corporation.
Depending on the structure of the partnership, partners may or may not have involvement in the management of the business. Partnership agreements detail the full provisions of the business, including minimum investments, fees, distributions, partner voting, and more. Some partnerships enjoy a more collaborative member structured forum for investment decisions, while others leave the core management of the business to a few executives. Generally, the partnership management team sources and identifies deals before investing partner capital per the partnership agreement.
Forming a corporation, public or private, is an option for any business. The Securities and Exchange Commission (SEC) and the market exchanges govern public corporations, whereas SEC Regulation D governs private corporations. Public companies must provide regular, quarterly, transparent financial statement reporting. Moreover, nearly any entity other than sole proprietors can elect to be taxed as a corporation if they meet the requirements.
Incorporating a business allows a company to sell equity shares of the business. Equity shares comprise a portion of the company’s total equity. Public equity shares vary in value based on their public trading value; alternatively, private shares are valued privately.
An executive management team manages corporations. However, shares can be structured with different voting rights, which gives equity investors some say in the company’s overall management.
Online real estate crowdfunding platforms can be known as a type of real estate investment group. These platforms are structured as partnerships and pass-through all income to investing partners with reporting on a K-1.
The emergence of real estate crowdfunding platforms makes it easier for both accredited and non-accredited investors to invest in real estate. Fundrise is one example of a popular real estate crowdfunding platform that offers investors the opportunity to invest in debt capital financing or take some equity in real estate properties.