How Real Estate Investment Clubs Work

Many lenders like Fannie Mae are reporting losses because of the housing market downturn. However, those loses don’t have to translate into losses for individual investors.
Many lenders like Fannie Mae are reporting losses because of the housing market downturn. However, those loses don’t have to translate into losses for individual investors.
Alex Wong/Getty Images

You may have heard there's still money in real estate. It sounds interesting, but all the same, you're a bit confused by the ins and outs of the market. What are REITs? What's the minimum down payment for a house so I don't have to pay PMI? And you know there are scams out there. Is there a way to learn more, mingle with some like-minded people, perhaps find a more seasoned investor to mentor you? Absolutely. Just find a real estate investment club.

You might be familiar with the stock investment club model, in which members pool their money to buy stocks and bonds. In a real estate investment club, you don't typically collaborate on investments. Instead, members come together to:

  • network
  • gain knowledge about investment practices
  • get hot tips about available commercial or rental properties
  • become familiar with laws and regulations
  • understand market trends and how to profit from them
  • trade information about vendors for property improvements and services
  • get the advice of legal and financial professionals
  • learn from guest speakers
  • find a supportive group of like-minded individuals with common goals

Of course, you've seen countless ads for books and seminars promising to tell you how to make millions now in real estate. Some clubs are little more than thinly veiled plugs for these services. They're set up by an investor who hopes to profit by selling services or investment strategies. Now, this seminar may indeed have something to teach you. But is it what you want to learn?

This article will not teach you how to make millions now, but it will tell you what you can expect from a real estate investment club, how to find the one that's right for you and when it might be a better option to start your own.

Joining a Real Estate Investment Club

Widespread foreclosures and a slumping market might offer you an opportunity to scoop up investment bargains.
Widespread foreclosures and a slumping market might offer you an opportunity to scoop up investment bargains.
Justin Sullivan/Getty Images

There are many real estate investment clubs to choose from. Remember, real estate investment clubs are different from real estate investment trusts or REITs. You can use the Internet to find local clubs and resources, or join an online club. The National Real Estate Investors Association, a non-profit trade association, is a good starting place. The links at the end of this article also offer more directories and guidelines.

Be sure to think about what you want from a club. Support, information and motivation are common goals. But they're certainly not the only reasons to join.

Identify the real purpose of any real estate investment club you consider joining. Attend a few meetings before you pay dues. Ask questions about the group's founders and their motives for setting up the club. Did they want to invest and learn together, or did they want to sell their products? Find out who the members are and what they do. Think about whether what they offer matches your goals.

Some more questions to ask would be:

  • Is the club set up for education and networking?
  • Is the club for-profit or not-for-profit? Either structure can be legitimate, but you should know what you're getting into.
  • Will people making sales pitches for books, seminars or services hammer me?
  • Does the club focus on the kind of real estate I'm interested in?
  • How many serious investors belong to the club? Are they more experienced than I am, or are they mostly newbies? You're likely to learn more from experienced investors.
  • Have the club's investors done well with investments over time?
  • What are the dues? Most clubs charge between $50 and $200 per year. More than that could be the sign of a scam. But you should also take a look at the club's other sources of money. If the club receives a commission from speakers who sell products or services, then the information from those speakers might be biased. Slightly higher membership dues might mean that you can get unbiased information.

Investing in real estate is a big step to take alone. Sometimes club members form partnerships. A partnership might help you feel safer about your investment, or it might let you purchase more property than you could alone. But at least one advisor warns, "Watch out for sharks" -- people who promise to find you a deal in exchange for a chunk of the property's income [source: Carr]. If someone suggests a partnership, be as thorough as you would for any other business transaction. Get the person's references, and find out about his or her history and credit.

One real estate investor estimates that 95 percent of people who attend club meetings never invest, or give up after one or two tries [source: Weston]. It can be daunting to discover the amount of work ahead of you. But a club can keep you from facing that work alone.

What if you can't find a group? What if every group in your area turns out to be full of hopeful newcomers or smarmy salespeople? You might consider starting your own club. Find out how on the next page.

How to Start a Real Estate Investment Club

Always know your investment philosophy. And you might want to take that Trump guy’s advice -- he seems to be doing all right.
Always know your investment philosophy. And you might want to take that Trump guy’s advice -- he seems to be doing all right.
Timothy A. Clary/AFP/Getty Images

If you can't find a club you like in your area, you might consider starting a new real estate investment club. You can define the focus of the club and seek to attract like-minded members. You'll want to reach out to people who have expertise in different fields, but who are motivated to gain or provide knowledge about real estate investing. You'll also want to think about the professionals you might invite to speak at your meetings.

You can start the process by conducting research.

  • Learn about the purpose and structure of existing clubs.
  • Attend a few meetings to get a feel for how they operate.
  • Consider what they offer their members.
  • Decide how you want your club to be similar to and different from the clubs you research. Jot down ideas and activities that seem worthwhile.

As part of your research, familiarize yourself with key real estate laws and current market conditions.

Once you have defined your mission and have a feel for what you want your club to offer its members, recruit people with expertise in real estate law, finance and accounting who can provide information lend their perspectives about potential real estate deals to the group. Figure out how the members will stay in touch. You also might want to create a monthly newsletter or an online discussion board.

You'll also need to think about how you want the club to grow. You can set up a website to market your club, or use local publications to recruit members. It's OK to start small. As your club provides value to its members, the membership is sure to increase.

Since money will be changing hands, think about incorporating to protect your personal finances. Decide whether your club will be a for-profit or not-for-profit entity. Each structure carries certain legal requirements and rewards. Your state's attorney general's office can provide more information about forms you must file.

Your group can elect officers such as a President and Secretary. Officers and members can help you decide how to manage dues, how often to meet, where to meet and how important decisions will be made. You might also want to create committees to find expert speakers, plan special events or seek out local real estate deals.

Whether you find a club or create one, embarking on the high seas of real estate investment can be a challenge. But it can also be rewarding -- and profitable. Stay alert and stay informed, and you should be all right. You can start by following the links on the next page.

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More Great Links

Sources

  • Bigger Pockets, Investment Real Estate Social Networking Community. www.biggerpockets.com/real-estate-investment-clubs.html
  • Carr, M. Anthony. "Real Estate Investment Clubs Provide Good Training Ground." Realty Times. November 2004. http://realtytimes.com/rtpages/20041105_reclubs.htm
  • Creative Real Estate Online. http://www.creonline.com/clubs.htm
  • Foust, Dean. "Real estate investment clubs." August 4, 2005. http://www.businessweek.com/the_thread/hotproperty/archives/2005/08/real_estate_inv.html
  • Toh, Alvin. "How to Start a Real Estate Investment Club." http://ezinearticles.com/?How-To-Start-A-Real-Estate-Investment-Club&id=583444
  • Weston, Liz Pulliam. "Real estate clubs ride the housing boom." 2005. http://articles.moneycentral.msn.com/Investing/RealEstate/RealEstateClubsRideTheHousingBoom.aspx