Jumping straight into real estate investing can cost hundreds of thousands of dollars that most people don’t have. This is where real estate investor groups come into play. You group up with other like-minded investors to pool your money together to either rent out a property for passive income or flip the house and split the profits.
Here is your ultimate guide to understanding how real estate investor groups work.
What Is a Real Estate Investor Group?
Real estate investment groups are a group of individuals that come together with the purpose of discussing everything related to real estate. This can mean up and coming areas that you all think would be a good fit or simply discussing pooling money together to buy a specific property.
These clubs consist of anywhere from five to over a thousand people, all with the idea of expanding or benefiting from an increase in real estate. Not all real estate clubs are based on increasing the number of properties either. Some clubs focus more on adding amenities to their properties, while others focus on only benefiting a specific group of people.
These groups focus on becoming a group entity, rather than just a group of individuals. When filing for legal purposes, each person goes in together as an equal partner, rather than owning different portions of the entity. The entity then has its name put on the lease, rather than five or more individuals.
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What Are the Different Types of Groups?
The different types of groups come down to the type of club you want to join. You can join or start a group that focuses on a little bit of everything. Everything would come down to buying the real estate to property maintenance.
If you decide that you just want to join a club that focuses on an individual aspect, you have that option as well. You can find a group that just focuses on apartment investing or just a group that deals in finding the best financing options.
You can delve into specific types of properties as well with your group. For instance, say you’ve been investing in residential property for a while, but you want to break into a different category. You can sign up for a specific group that focuses on a commercial property or even lots/bare land.
From there, you can dial it in even further. You can only focus on commercial buildings that house grocery stores or strip malls, rather than individual buildings. There is no limit to how specific or broad the group has to be.
What Are the Pros of Real Estate Investing Groups?
The pros of joining a real estate investing group start with the costs and potential upside. Rather than having to foot all the costs of a property, which can include upkeep closing costs, you instead split the costs and increase your ownership.
Whereas you might only be able to afford a $300,000 purchase, combined with three other investors that are like-minded, you can easily move that price to $800,000. From there, your group of you can decide what to do with the property, whether that be flipping, renting, or even living in some cases.
You can also learn from other investors and make relations with everyone you need in the process that goes into buying a house. This can mean connecting with lawyers, bankers, real estate agents, and contractors. These connections ensure that you all mutually benefit from the real estate process, rather than just a select few.
By having a central place for people to meet, you can also learn more about managing your properties. An example would be deciding to put solar panels onto a home. You can learn more about other members’ experience with solar, the benefits and negatives, and make a decision from there on whether it is a smart investment or not.
You can also bring in professionals and experts to teach the group, expanding everyone’s knowledge. The more people know about a subject, the more likely they are to make informed decisions, making it a smart move for everyone involved.
What are the Cons of Real Estate Investing Clubs?
Everyone has feelings, and that can mean feelings can get in the way of an opportunity. For instance, nine out of ten members decide to go in an investment property, seeing huge upside potential. But that tenth member thinks it is a terrible idea and decides not to go in on it, decreasing the pool and possibly losing financing.
Or, the group could decide not to go into the investment altogether in favor of saving the relationship of the last investor. By saving feelings rather than investments, everyone could have lost out on a huge profit, leading to a disgruntled feeling with the tenth member.
Another problem that could arise is when one member loses a job or needs money fast. They could request that their share of the estate is bought out, meaning that you might need to come up with cash unexpectedly. Or worse, you may need to sell the property to cash out their share.
A common fear with real estate investing groups and clubs is a housing market crash. During a housing bubble, there is a huge demand for real estate and money is being funneled at unsustained rates. When that money eventually slows down and stops, the market crashes.
When a market crashes it can ruin the equity that commonly comes with a house. An example would be if Orlando was in a housing bubble and everyone is buying up investment opportunities. Suddenly, there are too many houses being listed and not enough buyers, leading to a market crash.
From there, houses quickly depreciate in value, meaning that your investment can tank. If you were planning on flipping, you can find yourself underwater and just trying to make some money back. If you were renting, your tenants might not be able to make rent.
How Much Does It Cost to Join a Real Estate Investing Group?
The fees associated with a real estate investing club come down to the individual club. Higher-end clubs that are more exclusive and take into account your experience and net worth will routinely charge upwards of $100 a month. Other national clubs will also charge high fees, but come with the benefit of resources, making it a borderline class that you’re taking.
There is also the option of starting your own club. At the end of the day, there is no regulation saying that you can’t start your own, regardless of experience. You can decide fees, if you want any, from there.
Who Should Join a Real Estate Investing Group?
There isn’t just one person that can benefit from joining a real estate investing group. You can be an industry leader or a newbie that just graduated high-school. Though, everybody does benefit differently.
Here are some people that should consider joining one of these groups to meet their financial goals.
If you’re fresh out of school, that typically means you’re a youngster. The younger you are, the more beneficial investing in different assets becomes. Rather than wasting money on renting yourself, you can save that money and look into joining an investment group.
From there, they can teach how to invest. A good method might be buying to live in first, then moving into another location when you’re more established and renting out the previous place.
If you’re into trading stocks, then you might want to also join a real estate investing club. Real estate investing club is not only a great way to learn how to invest in real estate but many professionals in the industry will also be in the investing game.
Real estate is a great way to diversify your portfolio as well. This means you have assets beyond just owning shares and bonds of different companies.
While real estate investing clubs may seem limited to those that only want to grow their profile, families also benefit from joining. The connections you make at these clubs can help benefit the property you’re currently in.
For instance, if you want to redo your kitchen to a more modern design, you have several people at the club you can talk to. You can talk to an interior designed to see what matches your house and you might build connections with a contractor to reduce the costs of redoing the kitchen.
Joining these clubs as a contractor is almost a no brainer. It is a great way to build a business and make connections that can directly impact your career.
Beyond just owning the properties you invest in, you can use your business as a way to capitalize on any renovations that need to be done on the houses. This can help recuperate the costs of having to buy the properties in the first place, making it a win-win situation in the long run.
With owning real estate and having renters, investors are going to need lawyers. This creates another win-win situation, where you can benefit from both owning the property, as well as needing to handle any legal problems that may arise.
For instance, if you have unruly tenants that are destroying the property. You can fast track the issue of handling them and getting your money back, rather than waiting for someone else to find time to handle the legal portion.
This may seem obvious, but if you’re not currently in a real estate investing club, you may want to join one. You’ll be paired with other like-minded individuals that all share the same purpose.
Not only that, but you’ll learn the ins and outs of the industry faster and make connections that you never thought about. There is no such thing as knowing too much, so take the time to learn from others and what they have experienced in their years of owning properties. It can help you out if a similar situation arises.
Not into having people live in your properties and like to see yours used for commercial purposes instead? You should still join a real estate investing group, as you’ll be able to target markets more effectively and get ahold of properties easier.
Being the owner and landlord of commercial properties and being in a real estate investing club is a great way to ensure that your properties are in good hands. You can pair up with contractors from your club to help tenants build out their store.
This is another way to make your investments make money for you. If you’re a broker and looking to gain more business, joining a real estate investing group is a great way to do so.
Rather than having to shop around for the best deals possible, an investing group can rely on you to fast track the closing process. By doing this, you skip the headache of contacting multiple institutions and sending offers back and forth. You also get the kickback of closing on the house, allowing you then take that money and look for more investments to buy up.
When this happens, you essentially create a cycle where your group buying a property leads you to have more money to put down on another property. This creates a domino effect where you’re trying to find houses to buy that may not be there.
Joining Real Estate Investor Groups Will Never Be a Bad Idea
By joining real estate investor groups, you’re ensuring that your portfolio will have the knowledge behind it to succeed. You’ll never be alone and have plenty of others to bounce ideas off of when working with experienced real estate investor groups. Just be sure you’re all on the same page on your property investment goals and resources.
If you want to learn more about managing properties and keeping your finances in check as you invest, be sure to check out the rest of our blog. If you know someone that could use a real estate investing group, be sure to share this article with them.