Beginner's Guide for Real Estate Investment Clubs
What You Need to Know About Investing in Real Estate Clubs as a Group
Investing in real estate can be intimidating. It can be costly to get started, and dealing with the complexity of taxes, rent, and property maintenance can scare away even the bravest investor. And that's a shame because real estate can be a very useful and lucrative part of any investment portfolio.
Joining an investment group focused on real estate can help ease some of that anxiety and assist you in achieving your financial goals. When you invest alongside people with similar objectives as yours, you can benefit from the wisdom of a group and have a good time along the way. And much of the work of investing in real estate can be spread out, making it easier to enjoy the investment returns without the stress.
Just about anyone can join a real estate investment club, as long as they are able to invest their own money. There are investment clubs for retired men and women, investment clubs with college students, and investment clubs for wealthy businessmen. While investing clubs dedicated solely to real estate aren’t as common as those who invest in stocks, they do offer opportunities for just about anyone.
How Do Real Estate Investment Clubs Work?
To understand real estate investment clubs, it helps to understand the nature of investment clubs in general. In most cases, members of investment clubs pool their money and make investment decisions together. Investment clubs can be informal groups but are often organized as partnerships. Sometimes, the clubs themselves have stated investment objectives, such as value investing or investing for income. In the case of real estate investment groups, members are focused solely on investing in real estate.
Generally speaking, real estate investment clubs are made up of 5-10 people with similar investment goals, though there are no legal limits or minimums.
The group members work together to form a legal entity, ensuring that each member of the group is considered a joint owner. Then, when the group decides to buy and sell real estate, it is the group’s name on the deed.
Most real estate investing clubs have written operating rules and in most cases will elect officers. They will also assign specific jobs, such as sales execution, record keeping, taxes, property maintenance, and member communications.
Historically, members of investment groups would meet regularly to discuss and vote what properties they want to buy or sell. Nowadays, these decisions are just as likely to be made via email or online chat. The Internet has also made it easier to find real estate clubs in your area.
Investment club members will often pay a fee to join, and may also pay a set fee on a monthly or annual basis. (Be careful, as many clubs may ask for high membership fees, which could cut into your investment returns.)
Advantages of Real Estate Investment Clubs
Investing in real estate can be hard for individual investors, due to the cost of buying property. By pooling resources, members can more easily purchase homes or even commercial real estate buildings. They can also more easily pay to outsource the maintenance of the properties they buy.
Many real estate investing clubs will meet regularly to not only make investment decisions but get smarter. An investment club meeting might include a visiting speaker who can outline the basics of market analysis, or how to deal with problem tenants. Investment club members may also attend conferences together.
There’s a positive social component to investing clubs that can’t be ignored. But it can also be very beneficial financially to invest in real estate as a group. When you join a club, you are benefitting from the collective knowledge of the members. This can often lead to better—or at least more thoughtful— decisions about properties, especially if the group is committed to educating itself on an ongoing basis. Moreover, because money is invested from a pool, there is the potential to invest more at one time, thus cushioning the impact of any costs.
Disadvantages of Real Estate Investing Clubs
The collective nature of investment clubs also means there’s a lack of flexibility for individual members. For example, if a group member finds his or herself in need of funds and wishes to cash in some of the equity they have, they would have to get the support of other group members first or have another member buy them out.
One other downside to investing as a group is that feelings can get in the way of good decisions. For example, the group may decide against selling a property to avoid hurting the feelings of another who had argued for holding onto it.
Join a Club With People Like You
If you are thinking of joining an investment club, you want to make sure the members have goals that are similar to yours. If you are approaching retirement age, you don’t want to be part of a club with young people who may have a more aggressive investment strategy in mind. Likewise, if you are the type of person who has a high risk tolerance and likes to buy and sell frequently, you may not be comfortable with someone who prefers to hold onto a property for a long time. It’s best to find a real estate investment club comprised of people who think like you, and who can help you reach your financial goals.