Real Estate Investment Clubs Pros and Cons
Real estate investment clubs can be the ideal solution for some, but not so much for others.
Real estate investment clubs may be overwhelming. It can be expensive to get started. Coping with the complexities of taxes, leasing, and property maintenance can scare even the bravest investor away.
Joining a real estate investment club will help alleviate some of the pressure and help you meet your financial goals. You will benefit from the group’s wisdom and have a nice time on your way. Also, a lot of investing in real estate can be spread out. Therefore, making it easier to enjoy investment returns without worry.
If you’re a first-time investor or you’ve been at it for a while, knowing the pros and cons will take you a long way. It may help you decide whether it’s something you want to get involved with.
Investment Club Pros
- The pooling of resources with others could make it possible to buy money for those who may not be able to invest otherwise.
- Some clubs provide learning opportunities, provide informative speakers, and coordinate community attendance at conferences.
- The responsibilities inherent in investing in real estate can be distributed to various participants so that no one is overwhelmed.
Investment Club Cons
- Emotions can get involved when you’re dealing with a lot of different personalities, and emotion isn’t supposed to play a role in investing.
- Some clubs require expensive membership fees, and these costs will potentially cut back on your returns.
- You will not be able to get your money out quickly if you need to do so because of an emergency.
How are Real Estate Investment Clubs working?
Just about everyone can join a real estate investment club as long as they can invest their own money. There are clubs for elderly men and women, college students, and affluent businessmen. Although real estate investment clubs are not as popular as those investing in stocks, they do provide opportunities for just about everyone.
Generally speaking, real estate investment clubs are made up of five to ten individuals with common investment objectives, but there are no legal limits or minimums.
In most cases, members pool their resources and take investment decisions together. Investment clubs may be informal organizations, but they are also structured as partnerships. Some clubs have their own stated goals, such as investing in value or investing in profits. In the case of real estate investment associations, participants are concentrated exclusively on investing in real estate.
Group members work together to form a legal association to ensure that each member of the group is deemed to be a joint owner. Then, when the group decides to purchase and sell real estate, the name of the group goes to the deed.
Many real estate investment clubs have written operating rules and, in most cases, may elect officers. They can also delegate unique roles to members, such as sales execution, record keeping, taxation, property management, and member communications.
In days gone by, investment group members will meet periodically to negotiate and vote on assets. Nowadays, these decisions are taken most frequently by email or online chat. The Internet has also made it easier for you to find real estate clubs in your city.
Investment club members may also be expected to pay membership fees in order to participate, and they may pay an additional fixed fee on a monthly or annual basis on a continuous basis.
Advantages of Real Estate Investment Clubs
Investing in real estate can be daunting for individual investors due to the expense of purchasing land. Members can buy homes or even commercial real estate more efficiently when they pool their money. They can also pay more effectively to outsource the management of the assets they purchase.
Many real estate investment clubs will meet regularly not only to make investment decisions but to get smarter. An investment club meeting can involve a visiting speaker who can outline the fundamentals of market research or how to deal with problem tenants. Members of the real estate investment club may also attend conferences together.
You will benefit from the common experience of the members of the club. This can also lead to better—or at least more thoughtful—decisions on assets, particularly if the community is committed to continuing education. In addition, there is a possibility to spend more at one time when capital is invested from a pool. This decreases the effect of any costs.
Disadvantages of Real Estate Investing Clubs
The collective existence of investment clubs also ensures that there is a lack of choice for individual members. For example, a member of a group would need the help of other members of a group, or another member would need to buy it out if she found herself in need of funds and decided to cash in some of her equity.
Another downside to investing as a group is that emotions can get in the way of making good decisions. The community could decide to sell a property in order to avoid hurting the feelings of anyone else who had argued that it should be kept. Many clubs are calling for large membership fees, which might slash your investment returns.
Join the People Like You Party
Make sure participants have ambitions that are close to yours if you’re thinking of joining an investment group. You don’t want to be part of a club of young people who may have a more aggressive investment plan in mind when you’re nearing retirement age. Likewise, if you have a high-risk tolerance and like to buy and sell regularly, you may not be comfortable with those who choose to keep the property for a long time.
It’s best to join a real estate investment club made up of people who think as you do and who can help you achieve your financial goals.
If you enjoyed our article please read our next article which explains how to Build Good Business Credit.