The Pros and Cons of Real Estate Investment Groups
Investing in real estate can be intimidating; there are so many different types of real estate you can invest in and there are a few different ways you can go about doing it that when trying to look everything up can get overwhelming. Investment groups can be a good option for someone who is just starting out since they can simplify the entire process for you and help you sort out what information you need to know from the irrelevant information you found while attempting to research the subject.
How Do Investment Groups Work?
A real estate investment group is a group of people who combine their knowledge and finances into investing in real estate. These are good for investors new and old, and they can be a great way for a novice investor to learn how investing in real estate works. They can also provide excellent networking opportunities.
When your group invests, everyone buys shares of the property the group is purchasing, and everyone receives payments over time based on their contributions.
Pros of Real Estate Investment Groups
There are numerous benefits to joining a real estate investment club.
Gets You Started
One of the big advantages of these groups is that it can help new investors get started. The cost of real estate can often make a potential investor shy away from investing in the industry, but with a group, you are all pooling your money, so it is much more affordable when you are just getting going.
Pooling of Resources
You also have the opportunity to invest in some more expensive investments that would be beyond the reach of many individuals, whether they are new to investing or have been doing it for years. For example, a posh hotel in a major city can go for one billion dollars or more, which is out of the reach of most people on their own, but in a group, you can pool your resources to invest in something big like this. "These larger investments often bring a much greater ROI and you can access a class of properties with far less competition amongst prospective buyers."
A Chance to Learn
If you find a group that has a more hands-on approach to investing, this can give you a valuable opportunity to learn more about investing in real estate so you can further expand your own investment portfolio. There are also groups that hire property managers instead of collectively managing a property themselves, giving you a more hands-off approach.
Cons to Real Estate Investment Groups
There are, of course, some cons that come with joining an investment group too.
There will always be someone you just do not get along with; it happens. When a group is diverse there are going to be personality conflicts from time to time, especially since money is involved. How big of a problem this can be will depend entirely upon your personal situation.
Sometimes a group will bring in "'experts' who try to sell you books, courses, or encourage you to attend high-priced conferences. The 'expert' then pays the club a percentage of sales." When you are researching investment groups, this is something that is important to keep an eye out for.
Loss of Control
When you put your money into something, you want to have control over it, but sometimes individual investors may feel like they are not getting a say in how their money is invested. This is frustrating for any investor; an experienced investor who wants to be more hands-on, and the new investor who wants to learn, but does not get enough control to do so.
Cook, Vicki, and Amy Blacklock. “Real Estate Investment Clubs: How Can I Benefit From Joining?” WomenWhoMoney, 12 Mar. 2020, womenwhomoney.com/real-estate-investment-clubs-benefits-drawbacks/.
Zelazo, Kristine. “The Pros and Cons of Joining an Investment Group - Kristine Zelazo.” Kristine Zelazo: The Short Sale Gal, 24 Oct. 2017, www.kristineshortsalegal.com/the-pros-and-cons-of-joining-an-investment-group/.