Buzz
Many financial institutions, including Fannie Mae, are facing losses due to the downturn in the housing market. However, these losses don't necessarily need to impact individual investors. With careful strategies, personal investments can still yield positive results.
Alex Wong/Getty ImagesYou’ve probably heard that there’s still money to be made in real estate. It might seem intriguing, but you could be unsure of the details. What exactly are REITs? How much do you need for a down payment on a house to avoid PMI? And how can you steer clear of scams? A great way to gain knowledge, connect with like-minded individuals, and possibly find a seasoned mentor is by joining a real estate investment club.
You might be familiar with the concept of stock investment clubs, where members pool funds to purchase stocks and bonds. In a real estate investment club, however, members don’t usually collaborate on specific investments. Instead, they gather to:
- connect with others
- expand your knowledge on investment strategies
- receive valuable tips on available commercial and rental properties
- familiarize yourself with relevant laws and regulations
- track market trends and learn how to benefit from them
- exchange vendor recommendations for property upgrades and services
- consult with legal and financial experts
- gain insights from guest speakers
- join a community of like-minded individuals with shared goals
You've likely encountered numerous advertisements for books and seminars that claim to reveal how to make millions in real estate. While some clubs may seem like disguised promotions for these products, they are typically run by an investor looking to profit by offering services or investment methods. Though the seminar might offer some useful information, the question is whether it’s the knowledge you actually want.
This article isn’t about teaching you how to amass millions overnight, but it will guide you on what to expect from a real estate investment club, how to find one that suits your needs, and when it might be a better idea to start your own club.
In the early 2000s, 55 U.S. cities saw real estate values increase by 30 percent or more [source: Weston]. This led to a boom in real estate investment clubs as well. Between 2002 and 2005, the number of clubs registered with the National Real Estate Investors Association grew fourfold, with estimates suggesting there were over 500 additional clubs [source: NREIA].
Becoming a Member of a Real Estate Investment Club
With widespread foreclosures and a sluggish market, there could be an opportunity to seize investment deals at a bargain price.
Justin Sullivan/Getty ImagesThere’s a wide range of real estate investment clubs available to you. Keep in mind, however, that these clubs are distinct from real estate investment trusts (REITs). You can easily search online for local clubs or opt for joining an online group. A great starting point is the National Real Estate Investors Association, a nonprofit trade organization. Additional directories and resources are provided at the end of this article.
Before joining a real estate investment club, consider what you're looking to gain. Support, knowledge, and motivation are common objectives, but there are often other reasons to get involved.
When considering a real estate investment club, take the time to understand its true purpose. Attend a few meetings before committing financially. Ask about the origins of the group and the motivations behind its creation. Were they focused on learning and investing together, or is the goal to sell products? Investigate the members’ backgrounds and activities. Ensure their offerings align with your personal investment goals.
Here are a few more questions you may want to consider asking:
- Is the primary focus of the club on education and networking?
- Is the club operating as a for-profit or non-profit organization? Both structures can be legitimate, but it's important to understand what you're signing up for.
- Will I be bombarded with sales pitches for books, seminars, or services?
- Does the club concentrate on the type of real estate I'm interested in?
- How many seasoned investors are part of the club? Are they more experienced than I am, or mostly beginners? You’re likely to gain more from those with greater experience.
- Have the club's members had success with their investments over time?
- What are the membership fees? Most clubs charge between $50 and $200 annually. If it's higher, it could be a red flag. You should also consider the club's other funding sources. If the club earns commissions from speakers selling products or services, the information might be biased. Slightly higher fees could indicate impartiality in the information provided.
Investing in real estate is a significant commitment, and it can feel overwhelming to go it alone. Some club members may choose to form partnerships, which could provide a sense of security or enable you to purchase more property than you could on your own. However, one expert advises, "Watch out for sharks"—people who offer to find you a deal in exchange for a share of the property's earnings [source: Carr]. If you’re offered a partnership, be as thorough as you would with any business deal. Request references and check their background and credit history.
A real estate investor claims that 95 percent of those who attend club meetings never make investments or quit after just one or two attempts [source: Weston]. The work involved can be intimidating, but a club can provide you with the support you need to avoid facing it all on your own.
What if you're unable to find a group? What if every club in your area is made up of eager beginners or pushy salespeople? In that case, you might want to consider starting your own club. Learn how to do that on the next page.
Starting Your Own Real Estate Investment Club
Always stay true to your investment philosophy. And perhaps consider taking some advice from the Trump guy—he appears to be doing well.
Timothy A. Clary/AFP/Getty ImagesIf you can't find a suitable club in your area, why not think about launching your own real estate investment club? You can shape the focus of the group and attract members who share your vision. It's important to connect with individuals who bring a variety of expertise, and who are passionate about learning or sharing knowledge in real estate investing. Additionally, consider the professionals you might invite to speak at your gatherings.
Begin by conducting research to kick off the process.
- Understand the purpose and organization of other clubs that already exist.
- Participate in a few meetings to observe how they function.
- Evaluate what they provide to their members.
- Decide what aspects of these clubs you want to replicate or differentiate your club from. Take note of activities or ideas that seem valuable.
As part of your research, get acquainted with the fundamental real estate laws and the current state of the market.
Once you've established your mission and understand what you want your club to offer, recruit experts in real estate law, finance, and accounting. They can provide valuable insights and offer perspectives on potential deals. Consider how the members will stay connected. You might also consider creating a monthly newsletter or an online forum for discussions.
Think about how you want your club to grow. You can create a website to promote the club or use local media to recruit members. It's fine to start small, as the membership will naturally increase as your club proves its value to its members.
Since money will be involved, it's important to consider incorporating to protect your personal assets. Determine whether your club will be a for-profit or non-profit organization. Both types have specific legal requirements and benefits. You can get more information about the forms you need to file from your state's attorney general's office.
Your group can appoint officers such as a President and Secretary. These officers, along with the members, can help establish guidelines for managing dues, deciding how often to meet, choosing meeting locations, and making significant decisions. You may also want to form committees to recruit expert speakers, organize special events, or explore local real estate opportunities.
One advantage of incorporating is that it requires you to establish bylaws, which are the rules that govern the club. Even if you don't incorporate, it's still a good idea to have some rules in place. Bylaws clearly outline the club's focus and operations, helping prevent confusion about how business should be conducted. They also detail how dues will be handled and can serve as a tool for attracting new members by showing them how the club operates. You can search for sample bylaws and collaborate to create and adopt your own.
