I have been posting a lot about early stage group investments as I will be managing the next Seattle Angel Conference fund and am working on putting together some smaller early stage investment funds. Real estate isn't that much different and the real estate deals I have worked on have been a lot of fun, both my own and the ones I have worked on in a group. In fact I am working on moving around some of my real estate assets as I write this. If you are going to consider a real estate investment with other people though, here are a few things to think about.
If you have a few friends/family who are going to get together and all perform due diligence on the property, manage the entity that owns the property, and put in equal capital contributions you can set up a simple LLC that is in the business of Real Estate. You should seriously consider having a lawyer represent each of the parties so that everyone is comfortable with the LLC.
On the other hand, if you have one or two people in the group that are going to do all of the due diligence and do most of the entity management or put in most of the money, you will have created a security by offering participation to having passive investors in the entity. If the group of people you have pulled together fall into this category you should use a securities lawyer to create your LLC and properly register it.
The first option is straight forward and easy to get started, the cost is low and the emphasis is really on getting a great contract between the parties. You don't want to be stuck in ten years without a clear method of resolving conflicts. Nor do you want to be in a position where your interests are not protected and you lose out on a big move in the real estate market. This model is closer to the early stage investment funds I am working on, group due diligence, group voting, with a manager that has minimal influence yet is compensated well for managing the investment.
The second option is more costly and is closer to a venture capital or hedge fund where there are many limited partners and the general partner makes all of the decisions with the limited partners having quarterly or yearly insight into the investment progress. The manager has a lot of influence over the investment and is compensated for their ability to pick and manage great investments.
There are other considerations that may change the general thought process above such as where the capital is coming from, experience level, accreditation, etc. The entry/exit and future purchases are a much trickier subject. There are a lot of different ways to do this and it depends on a lot of different variables. You can price the units & re-value the units, you can have a formal buy-back plan, you can have an ad-hoc buy-back plan, etc.
If you are looking to get started investing in either real estate or early stage companies, you should really think through how much time you want to spend on the investment. There are many options to invest more passively (limited partner) and still put together a great portfolio - you don't have to be a landlord to get 15-30% IRR on real estate investments. There are also many options to be active even when investing a small amount (5-25k) - these are emerging though so caution is warranted. You should truly know your co-investors and ensure you have the time to be active.