Co-Investing Club: Group Real Estate Investments with $5K Apiece

Every month, we vet joint ventures in real estate.

Fractional Ownership in Real Estate

Every month, we jump on a video call to discuss a real estate syndication deal. 

All deals allow middle-class investors, not just wealthy accredited investors. Any club member who wants to move forward with the deal can do so, with as little as $5,000 apiece. Compare that to the $50,000 – $100,000 minimum investments typically required by syndications.

We all form a joint LLC and bank account for each new investment. Participants all become partial owners of the investment LLC with full voting rights and privileges. You receive a K-1 tax form at the end of the year (usually showing paper losses from depreciation, even as you collect cash flow.

Properties, Markets, and Returns

We aim for as much diversification as possible among our joint ventures in real estate. 

That includes geographical diversity, across the entire U.S. For example, recent investments include apartment complexes in Phoenix, Chattanooga, Dallas, Houston, and Sherman, TX.

Our diversification strategy also includes types of assets, from multifamily properties to self-storage to mobile home parks and beyond. 

And for returns, we aim for 15-25%+ each year as the average internal rate of return (IRR).

group investing in real estate

Less Money, More Properties

It takes a lot of money to invest in real estate. Think $50-100K, whether you’re coming up with a down payment for a rental property or investing in real estate syndications.

That makes it hard to diversify, when each individual asset takes up so much of your capital.

We solve this problem by pooling money together to invest as friends and family. Club members can invest in any deal they like, with a minimum of $5,000 per deal.

Who Can Join the Co-Investing Club?

We originally launched the Co-Investing Club to benefit our FIRE from Real Estate course students. We’ve since expanded it to allow non-students as well.

You do not have to be an accredited investor to buy into these joint ventures in real estate.

If you don’t know what real estate syndications are or why you should invest in them, take our free class on syndications. It’s less than an hour, and shows you:

    • How real estate syndications work
    • The pros & cons of investing in syndications
    • Tax benefits of real estate syndications
    • How to invest as a middle-class investor (non-accredited investor)
    • How to invest $5K instead of the usual $50-100K
    • How to vet real estate syndicators

learn about fractional ownership of real estateLearning Zone

New to group real estate investments? No sweat. Most middle-class investors have never heard of real estate syndications, and those who have harbor plenty of misconceptions about them.

Here’s what you need to know about joint ventures in real estate before joining the Co-Investing Club.

 

What Is Fractional Ownership in Real Estate?

It’s exactly what it sounds like: you buy in as a partial owner in a large real estate deal.

In most cases, we invest in multifamily properties (apartment complexes). When available, we also love to diversify into other types of real estate fractional ownership such as self-storage facilities and mobile home parks.

This lets you spread money among many different passive real estate investments. The only labor required on your part is vetting the deal — which we all do together as a real estate investing club. Specifically, we bring the sponsor (the syndicator) on a video call to answer all of our collective questions. Then each investment club member can decide for themselves whether they want to participate in that particular deal.

 

Why Invest in Group Real Estate Investments

Most people come for the returns but stay for the diversification and passive real estate investing.

Low Minimum Investment

When you invest with a fractional ownership model like an investment club, you can invest $5K in deals instead of $50-100K needed for direct ownership or investing in syndications by yourself. That makes it a lot easier to build a diversified real estate portfolio.

High Returns

We target deals aiming for 15-25% annualized returns. In the real world, expect a bell curve on returns: some will underperform or even lose money. Others will deliver huge returns. For example, one sponsor we’ve invested with a few times now has an average IRR (annualized return) over 70% on the deals they’ve completed.

Passive Real Estate Investing

Unlike flipping houses or buying rental properties, group real estate investments are 100% passive. After transferring in your investment, you just sit back and collect cash flow distributions. When the property sells, everyone gets paid out proportionately to their ownership.

Potential for “Infinite Returns”

Some syndicators refinance to return passive investors’ capital to them, then hold the properties longer. In many ways it’s the best of all worlds: you get some or all of your investment back, but you keep your ownership in the property. You continue collecting cash flow, and get a big paycheck when the property sells. Think of it like the BRRRR method in residential real estate investing.

Tax Benefits

Fractional ownership in real estate offers the same tax benefits as becoming a landlord. All the same investment property tax deductions come off your taxable income. And not only do you get to take property depreciation, but most sponsors do a “cost segregation study” to accelerate the depreciation. That means you show paper losses even as you collect real distributions and cash flow.

 

What Are the Cons of Group Investing in Real Estate?

All investments come with risk, and group investing in real estate is no different.

Theoretically, the sponsor could run off to Guatemala with our joint investment money. That’s a risk we can manage though, by vetting sponsors extremely carefully. We only invest with syndicators who have a long, proven track record of success.

A more realistic risk is that something unpredictable happens and the market changes. Cap rates could skyrocket, reducing sales prices. A city could go from “the cool kid” to the “loser” for some reason. A gnarly recession could strike the U.S., driving up vacancy rates and stalling rent growth.

We view these joint ventures in real estate as medium-risk, high-return. While no investment is risk-free, we can mitigate these risks by cherrypicking real estate markets with strong population growth and diverse economies.

Risk aside, real estate syndications do come with drawbacks. These are medium- to long-term investments, usually 2-7 years. Once invested, you can’t pull your money out — there’s no secondary market or liquidity for these deals.

As noted above, real estate syndications require high minimum investments. Out in the wild, that usually means $50-100K. Our real estate investment club lets you pool funds with other investors, cutting that minimum investment to $5K. But for middle-class investors (like we all are), $5,000 is still a lot of money.

 

returns on group real estate investmentsHow Returns Work in Real Estate Fractional Ownership

In a real estate syndication deal, returns are usually split between the sponsor and the passive real estate investors in what’s called a “waterfall.”

Often that includes a preferred return on cash flow for the duration of the deal. That means passive investors (also referred to as limited partners or LPs) get first priority on receiving distributions before the sponsor starts collecting their portion of returns.

When the property sells, the sponsor is entitled to a certain percentage of the profits to compensate them for their labor in finding, buying, managing, and ultimately selling the property. The remaining percentage gets split up proportionately among financial investors, based on their ownership interest. Sometimes the sponsor’s portion (the “promote”) rises once they reach certain return benchmarks.

Confused? An example will help.

Say a syndication deal offers a 7% preferred return, then a 70/30 split on profits thereafter. You receive the first 7% of returns, both for rental income while the property is owned and upon the property’s sale. The sponsor gets second priority in collecting 7% returns themselves.

Above a 7% return, the sponsor takes 30% of the remaining profits as their portion (the promote). The remaining 70% of profits gets split up based on ownership percentage.

With us so far? Good, because it can get more complicated. Imagine now that for returns over 20%, the split drops to 50/50. In other words, you’re entitled to 70% of the profits up to a 20% return, but after that the sponsor takes half off the top and the other half gets divvied up among financial investors.

 

FAQ About Group Investing in Real Estate

Still have questions? We’ve got you covered.

What’s the difference between group real estate investments and a REIT?

You can buy and sell shares of real estate investment trusts (REITs) on public stock exchanges. They come with great liquidity, and you can invest for the price of a single share. That makes them an easy way to get started on a diversified portfolio of real estate assets. 

But that same liquidity from trading on stock exchanges comes with some drawbacks too. Publicly traded REITs come with volatility and they correlate with stock markets. And, because anyone can invest with just a few dollars, you can’t expect outstanding returns. 

Fractional ownership in real estate through syndications involves private equity investing, historically only available to the rich. In other words, you aren’t competing with every Tom, Joe, and Harry for returns.

How are real estate syndications different from real estate crowdfunding?
It’s a nuanced distinction. The short answer is that real estate crowdfunding platforms advertise publicly to the masses. In our Co-Investing Club, we invest in 506(b) syndication deals that by law cannot advertise publicly. They can only raise money from wealthy accredited investors and up to 35 non-accredited investors who they have an existing relationship with (in this case that requirement has been met by Deni and Brian establishing a relationship with them).

That said, real estate crowdfunding often offers similar types of real estate properties including apartment buildings, commercial properties including industrial or office buildings, and even single-family homes and vacation properties. Individual investors who don’t yet have $5,000 to invest should consider starting with crowdfunding platforms such as Fundrise, Groundfloor, or Arrived, which let you get started with $10-100.

How much passive income can I expect from fractional ownership in real estate?

No returns are guaranteed, all investments have risk, yada yada yada. But in general, you can expect a yield of 4-8% on these group real estate investments. Most deals pay a relatively low yield in the first year or two while they renovate the property and stabilize rents, then the yield jumps up. Investors receive distributions at regular intervals, usually monthly or quarterly.

If the sponsor refinances the property and returns some or all of your initial investment back to you, you can expect your yield to leap even as the actual dollar amount of distributions drops.

What type of legal entity or structure do you use for fractional property ownership?

We create a Pennsylvania LLC (limited liability company) for each deal, to jointly hold our collective ownership. We then create a joint checking account for that LLC, used only for that single property or deal. Ideally, someone steps up to serve as treasurer and oversee distributions to each member.

Who handles property management on these fractional real estate investing deals?

It depends on the deal. Some sponsors have an in-house property management team, others outsource to a property management company. Either way, expect similar costs for property management fees.

Does SparkRental earn a commission or otherwise get a cut on these investment club deals?

No. We earn all of our money through investment club membership fees (or course sales from our FIRE from Real Estate course). 

Deni and Brian simply invest alongside club members as equal partners and passive investors. 

Denise Supplee & Brian Davis

Your Partners in Real Estate Fractional Ownership

Your partners in these group real estate investments include other investment club members and Deni and Brian. You probably know us already as a SparkRental reader — we cofounded SparkRental and we invest our personal money in each Co-Investing Club deal. 

Deni Supplee started her real estate career as a property manager. She later became a landlord, real estate investor, and licensed real estate agent.

Brian Davis started as an account executive handling investment property loans. Then he started buying rental properties, and later writing for publishers such as BiggerPockets, Inman, Money Crashers, and REtipster as a real estate expert. He and his family spend most of the year traveling in South America — precisely why he loves passive real estate investing!

Between them, Deni and Brian have over 60 years of real estate investing experience. (So yeah, we’d like to think we know what we’re doing!)

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