Why don’t people invest in groups?

[David Thomas]

Hey everyone, I’m just getting started investing in real estate and I really want to understand why people aren’t investing in groups of 3 or more. I’m posing this question to investors of all types: short-term or long-term, residential or commercial, etc. There has to be a reason or reasons why more people don’t do this. I’ve gathered my thoughts below:

Clearly there are upsides to investing in a group:

• Lower entry cost. Whether it’s an even split or some sort of equity agreement, the group members get access to an asset they otherwise may not have been able to afford.
• Shared workload. Tasks like accounting, maintenance contracting, etc. can be divided amongst the group members so that they can put less time in or stick to their strengths. If one of the members doesn’t have a lot of experience it gives them the opportunity to learn from the others.
• Less risk. The less you invest the less exposure you have if the property takes a turn for the worst. If you’re invested in, say, 3 properties for ⅓ of the price, you’re much more risk averse.
• Scale. With a smart investment and proper use of leverage, investing with groups could give you the opportunity to scale earlier and faster than you would have on your own.

But, like with any group project, problems arise:

• Finding partners. There aren’t any surefire ways to bring a good group of investors together. You’re also probably not going to invest with multiple groups. For example, 3 groups of 5 people: You would have to work with 12 individuals to acquire, manage, and exit (maybe) on just 3 properties.
• Theft. Anything that involves moving money has the inherent risk of theft.
• Dishonesty. Finding a group of people that has a compatible set of contributions is hard enough, what if they aren’t all that they say they are?
• Legal work. Setting up a group investment is a small challenge legally but can be costly. A proper governance structure needs to assign responsibilities, cover every possible exit scenario, and more.

I imagine I haven’t covered anywhere near everything, which is why I’m here. If you have experience investing with a group, what was the best part? Worst? If you’ve considered it, but chose not to, why? What was the biggest reason? Thanks!