Investing in Real Estate as a Group

By Cliff Hockley, CCIM, CPM

Principal Broker and Senior Advisor, SVN Bluestone

I have been working with investors for over 35 years. Often, it’s a small group of people who invest together, a Mom and a Dad and their kids, or business associates that invest together.

A typical investment group may inherit some real estate or will have the income that generates enough cash to allow purchasing of additional investments. Often a Mom or Dad (Uncle or Aunt) will have a business that is generating cash that allows a family to invest together.

Successful groups will have a plan and build on that investment plan. Often, but not always, these families/groups will invest in a limited geographic area, say up to 60 miles away from where they live or work, for ease of management. Of course, as they grow capital and real estate assets, that may change due to limited local investment opportunities.

Things to Consider

When you invest with friends and family you have to deal with the realities of the different personalities and life experiences.

  • Age and Experience- Investing successfully takes experience. Investing as a group brings you an opportunity to match different levels of experience together.
  • A structure should be developed to create an educational and experiential legacy for all the members of the group. It starts with real estate classes, developing hands-on listening and decision-making techniques, moves to property inspections, leadership development, and then focuses on handing off assets through the formation of trusts, LLC’s and wills.
  • Building consensus: Questions need to be answered regarding where the money comes from and who and how investment decisions are made. You may follow the old adage, “He who has the gold makes the rules”, or possibly decisions can be made by a majority vote or consensus.
  • Illnesses and death can have an impact– plans must be laid in advance to deal with these contingencies such as insurance purchased to deal with estate taxes and property transfers.
  • Accounting Skills:
    • Learn how to read real estate related financial statements.
    • Learn how to borrow money and the impact of borrowing.
    • Understand tax implications of decisions that are made.
    • Learn to read a proforma for potential real estate investments.
  • Legal/financial planning: Not all members of the family have money.  How are returns allocated to members who do not contribute cash?  Investors need to work with an attorney to create legal protections for all members of the group, like the formation of an LLC or a trust. Sometimes the investors need to have their own attorney, rather than the group attorney, to make sure their rights or position is protected.
      • One way to plan for these cash needs is to carry enough insurance to cover potential litigation and backstop the insurance with a significant shared reserve account. Some of these operational costs include:
          • Leasing fees
          • Tenant improvements
          • CPA and Attorney costs
  • Financial responsibility- Should you need to borrow money you have to deal with the following:
    • Who are the lead partners financially?
    • Will all the members of the group have an equal responsibility to guarantee the repayment of the loan?
    • What happens if the lead partners become incapacitated?
    • Suppose you want to buy a new property or refinance an existing one and one of the family members filed for bankruptcy or has weak credit, how do you deal with that?
  • Income and Property Taxes: Taxes for the properties and the individual investors in the group need to be planned for and managed.
  • Cash Use
    • Are there member draws, monthly, quarterly, or annually?
    • Is money saved? Are reserves established? Is there a minimum reserve balance?
    • Decisions need to be made to define what works for the long-term safety of the investments and the investors.
    • If there is a cash call, a resource shortage may occur for the owners. This needs to be planned for. If there is litigation, there needs to be a way to fund it.
    • Remember that “Cash equals the freedom to act!”

Operational Planning Should be Officially Reviewed Every Few Years

Needs change for all of us. We managed property for a family whose father bought apartments as part of his retirement plan and the kids inherited them together. There were four children who in their late fifties decided to liquidate the assets. Their varied needs were as follows:

  • Wanted to build a new house;
  • Wanted to pay college tuition for their kids;
  • Wanted to pay their medical bills; and
  • Wanted to keep the properties for future cash flow.

They ended up selling a beautiful centrally located investment and dividing the cash. They could have refinanced and used some of the cash equity to pay bills or to buy another property, but the majority chose to sell. In this family, once the father was gone, no one had the time or desire to take on the day-to-day responsibility for the investments or to buy another property. Forward planning might have prevented the sale of the asset and kept it in the family to deliver long-term cash flow.

Unrealistic Expectations

As groups of investors get together, there needs to be a clear process for vetting investment decisions.

Solid goal-setting and underwriting must be in place. It could be helpful if a small group forms an investment committee to vet all investments, ensuring that new properties have a chance of being winners. It is difficult to run a business with more than three people making decisions.

Economic and financial conditions need to be considered. Develop a system of checks and balances. Decisions need to be made as a group, to buy and sell the investments. Finally, no one person should control the money. Even here checks and balances are important.

A clear operating agreement needs to be in place to help direct the decisions.

Beware of members who are not altruistic and get greedy. The objective has to be to share the wealth, not to have it stick to one family or family member. Build checks and balances into the system to prevent this from happening. Allow the majority to vote to eject a “bad apple”. This process is beneficial to keep everyone on the same track.

The division of responsibilities needs to be fair and fall to those that have the skills and time. Decide who is responsible for:

  • Investment decisions – bringing deals to the table and underwriting?
  • Managing the risk ( i.e., dealing with insurance and attorneys)?
  • Leasing negotiations?
  • Property inspections?
  • Setting the percentage of leverage?
  • Evaluating investment success?
  • Supervision of the property managers?

Generational Differences

As the leaders get older, they become more conservative. Younger members want more responsibility and to increase their net worth faster. Is that a problem? This potential conflict needs to be discussed and planned for.

Can the Investment structures adjust to the ownership of the assets? One needs to remember that sometimes a partner may want out. Maybe they have different investment priorities or just need the cash, this needs to be planned for as well.

In other words, as the need arises, the remaining partners might need time to liquidate assets to generate the cash to fulfill the needs of an existing partner.

How to get help to be successful

  • Find a property manager who can help you grow and manage your assets.
  • Find an experienced real estate attorney.
  • Find a competent real estate-centric CPA.
  • Find a consultant with this expertise.
    • Consider an Asset Manager
  • Look online for wealth advisors specializing in real estate.
  • Find a Commercial Real Estate Broker who:
    • Understands the group’s goals and priorities and investment plan.
    • Knows the local market.
    • Has relationships and/or is able to create relationships in remote markets.
    • Is able/willing to invest effort to see the entire portfolio remains consistent with the Investment Plan.


Let’s not forget we all get emotionally involved.

We fall in love with properties, locations, and tenants. Love may not equal a successful investment. How that is managed is critical to the long-term, multi-generational success of this real estate pool.

Emotions need to be managed and younger members of the operating team need to be nurtured so they can take over in the future.


As a group of investors, it helps if you have a vision for your group, to set its direction. For example, your statement of purpose could look like this:

Our family real estate partnership is focused on building a diversified portfolio of cash-flowing real estate and using that cash flow and equity to grow our investments to $10,000,000 over the next ten years.

Or like this:

The management team of LBC Industries has formed a real estate investment group to invest together for the next fifteen years, in that way, build our retirement. Our goals will be reviewed every year and adjusted as necessary to be in sync with the growth of our company.

The bottom line is that good leadership, communication, and planning will help families be successful with their long-term real estate investment goals and enable successful generational wealth transfer. Younger members of the family could ‘apprentice’ with the experienced members in various areas of responsibility.

For instance, in year one old timer Sam will work with Chad and Sue on the property management responsibilities for the Group.

Next year, Chad and Sue will work with ‘wise investor’ Rich to learn about underwriting and purchasing while Jane and Tim work with Sam. Clearly, younger members need to have an opportunity to mature and learn.