Purchasing real estate is one of the most popular options for investments. Investors from coast to coast will gladly offer their opinions on why it is not just among the best, but the best choice for your investments.
And there is a lot of truth to these claims. Real estate has a long history of sustained growth, bringing an asset that not only creates an income while you own it, but also grows in value over the years, allowing you to sell it for a profit.
Unfortunately, real estate can be expensive. A stock market portfolio, for example, can be started with only a couple hundred dollars, and investors can slowly add to the account. With real estate, if you are purchasing an investment property you usually need at least a couple thousand for a down payment just to get started. Often you’ll need even more. Also, most people need to use a loan to start investing in property, which adds financial risk to the investment.
For these reason, many people avoid the potentially lucrative option of real estate investments. But there might be a better option.
There is another way to invest in real estate without a significant initial purchase or a loan. Using a real estate investment group, you can actually become a property owner (in part) with only a fraction of the usual costs.
These groups have clear advantages, especially if you are new to property investments, but before joining, you should understand what they are, as well as the pros and cons associated with this type of group.
Real Estate Investment Group: What Are They, What Are the Advantages and Disadvantages?
Sometimes called a “real estate investment club,” these groups can be joined by practically anyone. People from all walks of life, and all economic statuses, will be able to take advantage of these groups. Many people assume you need to be wealthy to start investing in real estate, but these groups change that notion.
In most cases, real estate investment clubs include people who pool their money into one lump sum, then use that money to purchase real estate property. These groups can be organized as basic clubs and informal groups, or they can have a rigid, outlined structure similar to a legal business partnership. Some clubs even have officially-stated, focused objectives, such as investing in appreciating properties or income-generating real estate.
Group members usually come together to form a legal entity, which ensures that each member is considered a joint owner of the group. Having a legal structure is crucial, because when the group dissolves and liquidates (which will happen at some point), disbanding the group and allocating profits is much easier and less complicated.
Similar to almost any group or club, an investment group will usually have elected leaders, as well as assignments for members, which can include purchasing property, keeping records, paying taxes, maintaining property, and communicating with other members.
While in-person meetings have been common for investment groups, many of the important decisions can be made through online chats, virtual meetings, phone conversations, and emails. This makes real estate investment groups much more accessible to people all across the country. For example, someone in San Diego can now join a group based in Chicago, New York, or even London!
Benefits of Joining a Real Estate Investment Group
The main advantage to joining a real estate investment group is that you can enter into ownership with far less money. These groups bring a lower price tag than purchasing even a low-cost budget property, making them ideal for aspiring investors with little savings. Anyone who wants to try real estate investing, without a large financial commitment, will find these groups beneficial.
Joining a group can also make you a better real estate investor. With these groups, you often have access to the knowledge and experience of seasoned investors who can help you prepare for further investments. Club meetings might also include guest speakers and industry experts who can continue to build your knowledge in the industry, preparing you for solo investments.
Property investment also requires a lot of time, money, and energy. Simply tasks like finding renters, maintaining the house, and collecting checks can become nearly a full time job, but real estate groups allow you to own a property without worrying over these tasks.
Downsides to Joining a Real Estate Investment Group
With these groups, you simply don’t have the level of control that you would if you were purchasing alone. All the decisions are handled by the group, so while you can influence decisions, you can’t make the decisions. Often basic jobs like replacing a shower head need to go through the approval of a committee, significantly reducing the effectiveness of the ownership groups.
The other major downside is fees. Some investment groups charge large fees for membership; fees that can reduce the economic incentives to invest in the first place. The main goal, after all, is to realize returns from your investment, so if you are spending thousands of dollars a year in membership (as opposed to direct investments), you may be better served by a different outlet or a different group.
Like any group, people are involved, which means emotions can get in the way of sound decision making. A group member may be emotionally attached to a certain property, and they could pressure the group into buying even when it’s a poor financial choice. Likewise, the group may be pressured to keep a property when it would be wise to sell. There are numerous scenarios where emotions create poor financial decisions, and these need to be weeded out to ensure longterm success.
Get Reliable Support for Your Income Property Loans
If you want to learn more about purchasing an investment property, including the advantages and disadvantages of a real estate group, contact San Diego Purchase Loans today.
We are proud to offer our services to San Diego and the surrounding area, so whether you need a conventional loan for your personal home or a jumbo loan for an investment property, let us put our experience and knowledge to work for you.
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