Pros And Cons Of Real Estate Investment Groups | Propertylogy

Should You Join A Real Estate Investment Group?

By on September 27, 2018

Investing in real estate can be an intimidating job to undertake.

Buying a home for your own residence is very different from buy a property for investment because it is so much easier to overpay for a house without regret.

At least when you are living in your dream home, you would feel that the extra money is well worth the ideal environment that you wake up to everyday.

But when you pay as little as just 5% over the odds for a rental property, this can haunt you for a very long time.

Because when it all comes down to just numbers, it is so much easier to be critical on the decisions you make.

This is why many new investors are very receptive to joining real estate investment groups (REIG) to pick up knowledge and guidance from those who are more experienced than them in the trade.

It can sure be more assuring when you know that you have the same amount of stake in an investment with a few other investors who have a combined experience of more than 50 years in the real estate industry.

Moreover, you can feel safe that the deals you get involved in will not be jeopardized from carelessness or administrative mistakes since there are old-timers overseeing them.

How do real estate investment groups work?

These groups, or clubs can be formal or informal, and pretty much work via strength in numbers.

In most cases, the group as a whole will pool up capital from all interested members and acquire ownership or control of investment property.

The size of these investments are usually larger than what an average person will be able to afford.

Because if they are so affordable, there would be no reason to pool investment funds together in the first place.

For example, an attractive multi-family building could be on the market with a price too rich even for two or three investors. So with the combined funds from 10 members, the building can be acquired.

Something that is getting common these days are group buys of new homes. These are things that you should be wary about and will be discussed later.

In general, most groups that are serious in what they do consist of no more than 10 people.

But with networking becoming a trendy thing to get involved in these days, real estate investment clubs (REIC) can sometimes consist of hundreds of members.

However to many parties with other agendas, these clubs are usually just places for potential customers to congregate so that others can peddle their services, workshops and products.

This is the difference between groups and clubs.

Groups are more focused on real actual investing while clubs are more focused on training and selling.

This is why it shouldn’t be surprising if on the first day that you join a networking session of a club, you get to sit on the front row of a presentation trying to sell you condominiums located hundreds of miles away or in another country.

Groups can have more structure with individuals assigned to record keeping, treasury, communications, etc.

While joining groups and clubs might mean incurring a recurring membership fee, remember to do a check to see if other members are also paying such duties or if you are taken advantage of as a newbie.

Traditionally, regular meetups and get-togethers are frequently organized for discussions and socializing.

But with group chats now readily available with messenger apps and social media, physical meetups are getting more and more sporadic.

How to join a real estate investment group?

They are pretty much all over the place.

The thing is that people, especially real estate investors, like to work with like-minded people in the same local area because properties are very location-centric.

To find genuine real estate investors near your area, you don’t need to look further than some of the common place today:

  • Classifieds
  • Yellowpages
  • Real estate magazines
  • etc

I’d avoid Facebook. But it’s really your decision to make.

So it will not be difficult to find a REIG that would be willing to welcome you.

However, do realize that groups that are serious in their investing might reject you either for a lack of capital or lack of know-how as you don’t really add any value to the group.

The good thing is that it’s not all about money.

If you are able to contribute resources like a certain skillset, connections, commitment, etc, you might still be welcomed with open arms.

So do communicate what you can bring to the table when trying to join a real estate investment group.

For clubs, you can probably join as long as you make it to the networking sessions.

Advantages of real estate investment groups

As explained earlier, the biggest benefit of joining such groups is the pooling of resources that will enable you to have a stake in investments that most individuals will never be able to take on himself.

Other than that, it can supercharge your learning curve as you will have the experience and expertise of veteran investors to tap on.

And as members will have years of networking under their belts, you could also find very favorable opportunities before they even get on the market.

But do be mindful that even though experienced investors will be a great help, they can also be shrewd enough to take advantage of you.

For example, you agree to a 33% stake in an investment with equal share and capital outlay. But in reality the closing costs all come from your portion of capital even though you still get your stake.

This means that the other investors are contributing less cash.

For these reasons, the ownership structure of real estate assets is critical for the protection of your investments.

Co-ownership for example, have it’s pros but also a lot of cons.

Usually companies are incorporated when joint investments are undertaken. This will clearly lay out the amount of ownership each investor has.

This also makes it more formal and gives you a proper way to hold the group accountable for it’s actions.

Disadvantages of real estate investment groups

The only real disadvantage is that you might be bullied as a new member of the group, especially when you are a rookie investor.

Remember that existing members might have been together in the trenches for years.

And while you’d want to enter the clique in good faith, don’t trust anyone 100% until they show that they can be trusted.

Otherwise, if you play your role diligently, you are going to reap the rewards for being a dependable member for years to come.

The same cannot be said of real estate investment clubs.

I have been misled into attending some of these networking sessions before and have very little positive things to say about them.

These clubs basically consist of:

  • Salespeople and promoters of new homes
  • Small time developers
  • Bankers and mortgage brokers
  • Real estate services providers
  • New property investors
  • Real estate investing “trainers”
  • Multi-level marketers
  • etc

To put it bluntly, more than half of the people who attend these events are people trying to make money out of you instead of making money with investing in properties.

What you definitely need to watch out for are those “group buy” opportunities.

They are just sales presentations under the guise exclusive opportunities.

What might occur is this.

The organizer (who probably pockets a commission) avidly recommends a particular development project. And that project is coincidentally located in the area which he was salivating over during an earlier presentation as the start of the session. The promoter of the project then takes the limelight and starts selling the hell out of the units indicating that a group buy price can be attained. Gullible rookies then get sucked into these fancy sales pitches and regret it for the rest of their lives.

Little did they know that if they were to go online, they would find properties being sold at the same price to the public. Or even lower!

How to start your own real estate investment group

In my opinion, the best way to be part of a REIG is to start one yourself.

This is also probably the ideal way if you are new and not serious groups that mean business is welcoming you.

A good place to find like-minded people in a position similar to yours is through clubs.

While the number of real actual investors who have just started to get into game is small. They do make up a portion of people joining real estate investment clubs.

Learn to recognize them and if you can achieve a certain level of rapport, they are very likely receptive to start forming a group together.

Just remember to form a proper structure should your partnerships become official.

Because these are people who you don’t have years of experience working with, it’s hard to determine their motivations and commitment levels.

Some might be there just to hitch a ride.

Good luck.

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