Pool Investing? Group Investing?

[Kat Hussey]

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?

[Blake Dailey]

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.