Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Investing as a Group of coworkers

Colin8639

New Forum Member
Registered
Joined
May 1, 2016
Messages
2
What would be the best way to form an Investment Group to purchase rental properties and do some investing?

If a group of colleagues, 8 or more, (let's say non-real estate professionals) want to pool their money and get started in Real Estate investing, how would it be best to form the business? Would this be some sort of fund, a partnership, joint venture or something bigger like a holding company? I am seeking general advice, I know that eventually a lawyer would need to structure this.

The idea would be to start with one property and grow gradually. Everyone would benefit by learning about investing. Certain people would have their strengths and a network of people know for repairs, etc. I am sure this would come with some pitfalls, but it also brings lower risk.

I would really appreciate some feedback from those who have done something similar.

Kind Regards,

Colin
 

Rickson9

0
Registered
Joined
Oct 27, 2009
Messages
1,210
It's not lower risk. Why would it be? What partnership contracts have been drawn up?
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
Form an LP or corporation. Decide how to pay the lead managers, either in equity or as a fee.

==> A group without an experienced captain will likely fail. (dentists, doctors, accountants, lawyers, engineers: take note ! Just because you are a great dentist and make $400,000+ a year does not mean you are a great real estate operator, selector or manager)

Decide how major decisions are arrived at, say majority vote or unanimous, or by lead manager usually. Mortgage qualification will be most challenging as possible all 8 have to co-sign a personal guarantee. Also decide how to exit one or 2 people if they wish, but 6 do not.
 
Last edited:

Cory Sperle

0
REIN Member
Joined
Sep 1, 2010
Messages
826
From my observation, partnerships like this have a very slim success rate. I know of many failed ventures, and currently one with 6 or so medical professionals, inexperience often combined with ego is a recipe for disaster. Find or elect one "real estate professional" and the non professionals pool with him or her. Do a trial run where you each put in a small amount and do stocks. If things go great awesome, and if they go sideways you can quickly liquidate and buy your own real estate.
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
From my observation, partnerships like this have a very slim success rate. I know of many failed ventures, and currently one with 6 or so medical professionals, inexperience often combined with ego is a recipe for disaster. Find or elect one "real estate professional" and the non professionals pool with him or her. ..
Indeed, Cory.

A group without an experienced captain will likely fail. (dentists, doctors, accountants, lawyers, engineers: take note ! Just because you are a great dentist and make $400,000+ a year does not mean you are a great real estate operator, selector or manager)
 

Colin8639

New Forum Member
Registered
Joined
May 1, 2016
Messages
2
Thanks for each of your replies. It sounds like it would be a recipe for disaster. It was one brainstorming idea I had as a way to get started.
We would be high school teachers, with less ego perhaps. I was wondering about the structure, so thanks Thomas about the LP or corporation note. I like Thomas' point about having a lead manager. I would want to take that role, but I am inexperienced.
Cory's suggestion to start as a group investing in stocks would be a good trial. I'm sure roles would get defined over time and you could weed out people who don't fit the same goals. Eventually you might come to a core of like-minded folks.

Would it be better to be the main investor and seek joint venture partners or lenders from this same group?
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
You need to treat expertise and money separately and pay for them separately, say 20/80 or 30/70. Then you get money for expertise and additional money for money invested.

REIN offers a great JV kit and education.
 

Cory Sperle

0
REIN Member
Joined
Sep 1, 2010
Messages
826
Generally what I have most seen is the 'expert' doing all of the work in finding, managing, and eventually selling the asset, a monumental task by the way however puts in no cash. Others contribute just the cash but not the work and they split the profits hence win/win. The investment club type of philosophy you are referring to where everyone contributes cash equally with no clear leader is a strategy I have never really understood. Pooling money together to buy wholesale assets one couldn't afford on their own is nothing new, and it allowed me to buys some larger buildings early on by pooling with family members. This pooling of funds may be a strange concept however in Asian cultures it is done all the time, with large families owning large assets and businesses and operating them very efficiently. The important distinction is that behind every decision there is the family patriarch who is calling all the shots, and ultimately what he says goes.

What is your end goal here? To try it out as a hobby for some extra cash, to retire earlier, or to take over investing full time? If you are all inexperienced however really want to learn real estate then bring an outside expert into your group and coventure that way. You can learn and earn at the same time, and that's what I did in the beginning.
 

JROC

0
Registered
Joined
May 27, 2008
Messages
59
Set up a CORP.
I am in an investment group with 4 total people. We all own 25% share in the company. We each do different tasks and we each knew what task we would be doing before we got into biz. It has worked out well for our group.
Even though it has worked out well I would rather be the expert find the deal etc... then find JV partnerships and go 50/50 or 60/40 on deals.
 

Matt Crowley

0
REIN Member
Joined
Dec 14, 2013
Messages
980
Setting up a company to buy SFH is just silly in my opinion. There isn't a need for a board of directors on something so small.

If there is no one who actually works in the industry then do some research, buy some land together, and hire a professional developer. Probably going to just spin wheels.
 
Top Bottom