Pool Investing? Group Investing?

Question

Does anyone have experience in what I think is called pool investing? Like when 10 people each put in 10k so that there's a 100k deal. It seems like a good way to be able to share the wealth and also get a bigger deal. What are the pros and cons of this method?

Daniel McNulty · Answer

@Kat Hussey

Syndicates, crowd funding, crowd sourcing, pooled investments, private funds, etc. They are all essentially slang for the same thing. They are all legal entities to raise money to invest collectively.

That is about where they similarities end. Regulatory differences in who can invest and how drives much of the primary differences. Control, profit sharing and liability are among many of the other factors that separate them as well.

That being said, its based on raising money from the "public". If you are referring to you and 9 other of your closest friends collectively investing, it is much simpler. That is more likely just a partnership and could be as simple as a legal entity to ensure fairness and clarity on how you all work together.

Raising money from the public = complex and far beyond the scope that a single post can cover. Its expensive and not normally for the inexperienced.

Investing with your pals = much simpler, hire a good attorney and form a partnership of some kind. There are tons of posts on BP about partnership do's and don'ts if you want some more insight.

Good Luck.

Blake Dailey · Answer

I think what you are referring to is syndication. This is where a person (or group) finds deals and raises money from passive investors who share in the profits. This is selling a security which incurs SEC guidelines that you have to follow and the process is fairly sophisticated. This is how most people close large multifamily apartment deals. It is a great way to get the capital needed to close large deals.

You could also be referring to crowdfunding where usually a lot of people put in a small amount of money. This is a newer way to invest and has different guidelines. It is basically like buying stock in a real estate investment. You pay often high fees upfront like with any other stock fund. You also receive dividends instead of cash flow and have an illiquid asset. This would be like purchasing shares in a REIT.

In a syndication, investors own part of the asset and get all the benefits of owning real estate with no management and with crowdfunding you also have no management but lose those benefits of actually investing in real estate like depreciation and leverage.

Taylor L. · Answer

Regarding going as a partnership: I can't imagine the headache that running a $100k investment with 10 equal partners would involve. If it's a partnership, everyone has to be an active partner and thus needs to be involved in the decision making.

Going bigger, raising more money, running as a proper syndication, and having a smaller number of decision makers is so much less complex.

John Fortes · Answer

I'm sure you can get some expert legal advice on the con's of structuring a JV in the explanation you posted.

A syndication is a group of investors (limited partners) placing capital in a deal that is led by a team of experts (operators, syndicators, general partners or sponsor (pick a name of your choosing).

General minimum in deals is $50k. Just educate yourself on the model and common practice. There is no shortage of information out there. Go get em!

Happy investing!

Evan Polaski · Answer

@Kat Hussey, as you may be able to tell from the other comments, it depends and varies.  Regardless you are getting into an area that an attorney needs to be involved.

My guess is you are talking about a simple JV or partnership where you and some friends all invest and all take an active roll in the property.  Active being fairly subjective, but if partners are signing on loans, brought in for decisions big or small, or have an overall hand in the management, they are active.

Passive investors, as mentioned, becomes a syndication and there are many SEC filings and compliance items that need to be handled. Read: gets pricey.

Max Versteppen · Answer

An investment club is generally a group of people who pool their money to invest together. Club members generally study different investments and then make investment decisions together—for example, the group might buy or sell based on a member vote.

Pool Investing? Group Investing?

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