The Pros and Cons of Real Estate Investment Clubs

Clubs can be a perfect option for some, but not so much for others

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Investing in real estate can be intimidating. It can be costly to get started. Dealing with the matrix of taxes, rent, and property maintenance can scare away even the bravest investor.

Joining an investment group focused on real estate can help ease some of that anxiety and assist you in reaching your financial goals. You can benefit from the wisdom of a group and have a good time along the way. Much of the work of investing in real estate can be spread out. This makes it easier to enjoy the investment returns without the stress.

Whether you're a first-time investor or you've been at it for a while, knowing the pros and cons of this type of club can go a long way toward helping you decide if it's something you want to get involved with.

Pros of Investment Clubs
  • Pooling resources with others can make buying possible for someone who might not be able to invest otherwise. 

  • Some clubs offer learning by bringing in speakers and arranging group attendance at conferences. 

  • The tasks involved when investing in real estate can be spread out among members. No one person gets overwhelmed.

Cons of Investment Clubs
  • Emotions can enter in when you're dealing with different personalities. Emotion shouldn't play a role in investing.

  • Some clubs charge pricey fees. These costs can cut into your returns over time.

  • It might not be easy to get your money out if you need to do so because of an emergency. Real estate is not a liquid asset.

How Do Real Estate Investment Clubs Work?

You can join a real estate investment club as long as you can invest your own money. There are clubs for retired men and women, for college students, and for wealthy businessmen. Investing clubs built solely on real estate aren’t as common as those that invest in stocks. But they do offer opportunities for just about anyone.

Generally speaking, real estate investment clubs are made up of five to 10 people with similar investment goals. There are no legal limits or minimums.

In most cases, members pool their money and make investment choices together. Clubs can be informal groups. They are often set up as partnerships. Some clubs have their own stated objectives. These could be value investing or investing for income. In the case of real estate investment groups, members focus solely on investing in real estate.

Group members form a legal entity. This ensures that each member is a joint owner. Then, when the group decides to buy and sell real estate, its name goes on the deed.

Most real estate investing clubs have written operating rules. In most cases, they'll elect officers. They'll also assign specific jobs to members. These may be sales execution, record keeping, taxes, property maintenance, and member communications.

In days gone by, members would meet in person to discuss and vote on properties. Today these decisions are more often made via email or online chat. The internet also makes it easier to find real estate clubs in your area. 

Club members may have to pay a fee to join. There may also be is a monthly or yearly fee to cover costs.

Advantages of Real Estate Investment Clubs

Investing in real estate can be a challenge due to the cost of buying property. Members can more easily buy homes or even commercial real estate when they pool their resources. They can also more easily pay to outsource any upkeep of the properties they buy.

Many real estate investing clubs will meet regularly to get smarter. A meeting might include a guest speaker who can outline the basics of market analysis or how to deal with problem tenants. Club members might also enjoy a group discount by going to conferences together.

You benefit from the collective knowledge of the club's members. This can often lead to better—or at least more thoughtful—decisions about properties. This is even more true if the group commits to ongoing education. There's also the potential to invest in more than one property at a time because money comes from a pool. This cushions the impact of any costs.

Disadvantages of Real Estate Investing Clubs

The collective nature of clubs also means a lack of flexibility for each member. Say you need to get cash quickly and want to sell some equity. You would need the support of other group members or have another member buy you out.

Another downside to investing as a group is that feelings can get in the way of good decisions. The group might decide against selling a property to avoid hurting the feelings of someone who had argued for holding on to it.

Many clubs ask for high membership fees. This could cut into your returns.

Join a Club With People Like You

Make sure the other members have goals that are similar to yours. You don’t want to be part of a club with young people who might have a more aggressive investment strategy if you're close to retirement age. Likewise, you might clash in a club whose members prefer to hold property for a long time if you have a high risk tolerance and like to buy and sell frequently.

It’s best to find a real estate investment club comprised of people who think like you do and who can help you reach your financial goals.