Investing in Real Estate can be an intimidating experience, especially on your first time out. It can be a daunting task to come up with all the money you may need to get started investing in Real Estate. But you don’t have to try and do it on your own. A Real Estate Investment Club is a great way to bring together people who have different talents and attributes to act as a single unit to invest.
There are different types of investing partners who individually bring to the group some asset that is valuable to the rest of the members. You may be experienced in construction or even a contractor but you lack the knowledge you need for financing, or finding property or other aspect. Perhaps you lack the money to get started. If the latter is true, by finding a money partner you can solve that aspect of the equation. By bringing in a licensed real estate agent to be a member you can have a great source for property leads. Similarly by finding a person who works in financing, you can benefit from his or her knowledge of the financing industry.
Now I know what you are thinking – if I bring in all of these partners, I stand to lose a great deal of the profits as opposed to just doing it myself. But the beauty of assembling a group of professionals in an investment club is that you can be doing many more projects than you could do on your own. Conceivably, you could be doing as many projects as you have members. While one project is in the remodel or rehab stage you can be looking for your next deal or two. As all of this is going on another project can be actively being marketed for sale. With a system and a team of professionals who each bring something different to the table, you can handle many more projects. If your club starts closing on one property a month, it can add up to a significant income even though you are splitting the profits with the other members.
Once you assemble the members you want to be in your club, hold your first meeting and establish the ground rules. Set forth all of expectations of each of the members, how often you intend to hold meetings, the amount of monthly dues, how profits (or losses) will be handled and so on. Explain to all members that whenever you invest, it is possible to lose part or all of your money. Also explain to all of the members that income taxes will the responsibility of each individual member. Allow all of the members to have a voice in developing your operating agreement. In this way, the entire membership will know starting out just what is expected of themselves and the others. Once you have laid the foundation for your club, you should put it together into a formal partnership agreement that will be distributed to each member. Partnership agreements for investment clubs are available on-line, along with numerous accounting forms and spreadsheets to help you keep track of your money and investments.
Some clubs have even taken it to the next level and formed an LLC or S Corporation to protect the assets of the club. In the event any one individual is sued outside of the club, this could potentially endanger the assets of the whole club. By shielding the assets in a legal entity only the percentage of the assets that can be attributed to any one individual can be attached or attacked. Conversely, if some action of the club were to cause a lawsuit, the members could be protected personally from the actions of the club.
Elect officers of the club and define each member’s duties. Designate, for example, which member or members will be searching for properties to bring to the club and who will do research on the properties. Establish how financing will be handled and how title will be taken on the property. In the absence of a legal entity, one or more individuals will have to take title. With a legal entity such as an LLC, the entity could possibly take title.
You want to establish the working business model of the club. Will the club be doingReal Estate Flips or do you intend to buy, hold and rent out the properties for long-term gain, or perhaps you will be doing both.
Now there are existing Real Estate Investment Clubs that you may want to join also. These are clubs that normally meet once a month in cities all over the country and are generally open to all comers. Most will charge a nominal entrance fee but some do not. Almost all do have additional benefits that they will afford to their paid membership and most have a discounted annual membership available. The difference with these clubs is that they are sometimes organized for profit and offer you different items to purchase from educational courses and seminars to actual real estate deals, from which they get a commission or a percentage of the sale (see www.REINClub.com). Not all are for profit though and they will merely charge the membership fee to cover costs to bring you speakers and other special events. You can find lists of these clubs on the internet.
There are some national real estate investment clubs that you can join online. These clubs normally offer educational material, support links to valuable information, teleconferences with experts in the industry, and so on. This type of club normally conducts all of its business online as opposed to having regular physical meetings. One of the largest clubs currently is REIClub.com. They have an extensive set of resources and help available for all Real Estate Investors whether they are individuals or in a Club of their own.
Forming your own Real Estate Investment Club can be an exciting social event that you will actually look forward to. Some clubs, at meetings with a light agenda, will play the Robert Kiyosaki Cash Flow Game 101, which actually teaches you how to invest. You will gain the knowledge of the other participants who will complement the others. You can solve liquidity problems by bringing in a financial money partner. Solve the construction problems by having a contractor as one of the members. Fill your club with members that will pick up the slack where you are the weakest and you will have a successful means to creating wealth for yourself and your family.
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