How Real Estate Investment Clubs Operate

Real Estate

Despite the housing market’s downturn, individual investors can still profit, unlike lenders such as Fannie Mae who are reporting losses.
Alex Wong/Getty Images

You may have heard that real estate is still a profitable investment. However, you may be unsure about how the market works. What are REITs? What is the minimum down payment for a house to avoid PMI? And, of course, you’re aware of the scams that exist. Is there a way to learn more, socialize with like-minded individuals, and perhaps receive mentoring from experienced investors? Absolutely. Join a real estate investment club.

You may be familiar with stock investment clubs, where members combine their money to purchase stocks and bonds. In contrast, real estate investment clubs do not typically collaborate on investments. Instead, members gather to:

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

You have undoubtedly encountered numerous ads for books and seminars promising to teach you how to make millions in real estate right now. Some clubs are little more than thinly veiled sales pitches for these services. They are established by investors who anticipate profit from selling services or investment strategies. The seminar may indeed have something to teach you. However, is it what you want to learn?

This article will not show you how to make millions right now, but it will guide you on what you can expect from a real estate investment club, how to find one that suits your needs, and when it may be preferable to create your own.

The Market is Booming

In the early 2000s, 55 U.S. metropolitan areas experienced 30 percent or greater appreciation on real estate [source: Weston]. Real estate investment clubs had a boom, too. The number of clubs registered with the National Real Estate Investors Association quadrupled between 2002 and 2005, and by some estimates there were more than 500 others [source: NREIA].

Joining a Real Estate Investment Club

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. Keep in mind that real estate investment clubs are not the same as real estate investment trusts or REITs. You can utilize the internet to locate local clubs and resources or join an online club. The National Real Estate Investors Association, a non-profit trade association, is an excellent starting point. In addition, the links at the conclusion of this article provide additional directories and guidelines.

Be certain to consider what you want from a club. Support, information, and motivation are common goals. However, they are not the only reasons to join.

Before joining a real estate investment club, it’s important to understand its true purpose. Attend a few meetings and ask questions about the founders and their intentions. Are they interested in investing and learning together or just selling their products? Also, learn about the members and their offerings to determine if they align with your goals.

Other important questions to ask include whether the club is for education and networking, if it’s for-profit or not-for-profit, and if there are sales pitches for books, seminars or services. It’s also important to know if the club focuses on the type of real estate you’re interested in, and if there are experienced investors as members.

Investing in real estate can be daunting, but being a part of a club can provide a sense of security and partnership. However, it’s important to watch out for sharks who promise deals in exchange for a portion of the property’s income. If starting your own club is the only option, research and reach out to like-minded individuals with expertise in different fields.

To start a real estate investment club, it is important to research existing clubs and attend meetings to understand their purpose and structure. Consider what they offer their members and jot down ideas for your own club. Familiarize yourself with real estate laws and market conditions. Recruit people with expertise in real estate law, finance and accounting to lend their perspectives about potential deals. Decide on how the members will stay in touch and how the club will grow. Incorporate to protect personal finances and elect officers and members to help manage dues, meetings, and important decisions. Writing bylaws can help avoid confusion and serve as a recruitment tool. Starting a real estate investment club can be challenging, but rewarding and profitable with awareness and information.

Additional Information

Related Articles from HowStuffWorks

• How Purchasing a Home Works
• How Mortgages Function
• How Real Estate Investment Trusts Work
• How Corporations Work in Stocks and the Stock Market
• How Cooperative Housing Works 

More Useful Links

• Internal Revenue Service
• How To Start A Real Estate Investment Club
• How to Utilize Pre-Foreclosure Lists to Your Advantage
• National Real Estate Investment Association
• Local Resources for Real Estate Investment Clubs

Sources

• Bigger Pockets, a Social Networking Community for Investment Real Estate. 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

FAQ

1. What is a real estate investment club?

A real estate investment club is a group of individuals who come together to pool their money and invest in real estate. The club may focus on a particular type of real estate, such as residential or commercial, or on a specific geographic area. Members of the club contribute funds to purchase properties, and profits are shared among the group.

2. How do I join a real estate investment club?

To join a real estate investment club, you typically need to attend a meeting or event hosted by the club. You can find local clubs through online directories or by networking with other real estate investors in your area. Some clubs may require membership fees or a minimum investment amount.

3. What are the benefits of joining a real estate investment club?

Joining a real estate investment club can provide access to a network of experienced investors, educational resources, and opportunities to invest in properties that may be difficult to purchase on your own. Club members can share their knowledge and expertise, and working together can lead to greater success in real estate investing.

4. What are the risks of investing in a real estate investment club?

Investing in a real estate investment club can carry risks, such as the possibility of losing money on a property or disagreements among club members. It’s important to thoroughly research the club and its members before investing, and to have a clear understanding of the club’s investment strategy and guidelines.

5. How are profits distributed in a real estate investment club?

Profits in a real estate investment club are typically distributed among members based on their contribution to the investment. For example, if a member contributes 10% of the total investment, they would receive 10% of the profits. The club may also have guidelines for reinvesting profits or distributing them among members based on their level of involvement in the club.

6. Can I invest in a real estate investment club with a small amount of money?

Some real estate investment clubs may allow members to invest with a small amount of money, while others may require a significant investment. It’s important to research the club’s investment requirements and to have a clear understanding of the potential risks and rewards before investing.

7. How do I know if a real estate investment club is legitimate?

Before investing in a real estate investment club, it’s important to research the club and its members. Look for reviews or testimonials from other investors, and check the club’s credentials and investment history. You can also consult with a financial advisor or attorney to ensure that the club is legitimate and that your investment is protected.

8. What should I look for when choosing a real estate investment club?

When choosing a real estate investment club, look for a group that aligns with your investment goals and strategy. Consider the club’s track record, investment guidelines, and the experience and knowledge of its members. You may also want to attend a meeting or event to get a sense of the group’s culture and dynamics before making a commitment to invest.