How To Start A Real Estate Investment Club

Investing in real estate can be very profitable if done correctly. However, it can be daunting for someone who knows little about real estate investment or has little capital to invest. Just as there are investment clubs for stocks there are also investment clubs for those who want to invest in real estate. The purpose of a real estate investment club is to get a group together who can pool their resources and knowledge to invest in real estate.

The internet is a good place to research and learn about real estate investment clubs. Most clubs online ultimately want you to join and may not provide enough information until after a commitment is made. While most of these are legitimate you should research them before you make any type of commitment. You can attend meetings for other clubs to get a feel on how they operate. It’s helpful to have some first hand knowledge about real estate investment clubs before opting to start your own.

Be familiar with the relevant laws of your state before starting a real estate investment club. You and your group will need to know how real estate transactions are handled so you won’t lose money on your deals. It’s always helpful to find at least one member who understands these laws. In fact, members who have specialized knowledge such as accounting, law, finance and real estate can be beneficial for the group.

Many real estate investment clubs hold regular meetings, at least once a month. These meetings are used to make key decisions for the group. The group can elect officers such as president, vice president, treasurer and secretary to preside over meetings and manage the club. Additionally, you can form committees that perform special tasks such as scouting out potential property investments. Meetings can be held in person or as teleconference over the internet if many members are not local.

Monthly correspondence in the form of a newsletter can be sent out to members to keep them up to date on current events as well as when the next meeting will take place. It’s good to invite professionals such as real estate planners, realtors and brokers, financial planners and tax specialists to speak at meetings to share their experiences and educate the group members.

Deciding how much money to invest can be tricky. It is often best to start out small and work your way up to larger investments. The more members you have the less money each will need to invest. On the other hand, the more members you have the harder it would be to come to unanimous decisions. When starting a real estate investment club, write up bylaws that everyone agrees to. Be sure to include how decisions will be made and what power the president has, if any, to resolve disputes or override decisions.

Real Estate Investing Fundamentals in Tough Economic Times

In these tough economic times it is back to fundamentals when contemplating real estate investing. Whether investing in commercial properties, defined as office, retail, hotel and industrial property, or in multi-family residential property, it is a different time than in recent past. For the experienced investor it’s time to get back to fundamental principles and understand not only the property market, but just as critical, understanding the capital market in order to achieve some level of success. This is even more important for the beginning real estate investor.

During the heydays of 2002 through the first half of 2006, capital was plentiful for all property types. Most property types were easily financed with easy terms. With amble money looking for opportunities, lenders opened the spigot and investors could tap into a variety of sources to finance an acquisition. The days of lenders lending based on future potential income of the property and appreciation is gone. As a result, most buyers during this time period wound up paying a premium for their acquisition in anticipation of continued property values appreciating at a double digit pace as had been the case during much of this time.

We are in a totally different environment today. Today it is more important than ever to get back to fundamentals. For investors contemplating an acquisition, there are several property level as well finance level considerations and calculations one needs to perform to assist in properly evaluating a purchase. Qualified and experienced professionals can be invaluable in this area to help insure success.

A necessary first step is to identify goals for each property as it relates to ownership, property operations and management, and an eventual exit strategy. The following summary outlines the major considerations that are important to a successful investing program, whether at the beginner stage or at the level of the more seasoned real estate investor.

Property Types: Different property types require different property management and operating considerations as well as have different income and expense profiles. An example is a full-service office building where the owner pays all building operating expenses and up keep with no pass-through to the user. Granted, the rental rate the office user pays reflects the operating expenses, however, there may be expense stops in the leases prohibiting any amount over a certain dollar amount per square foot that can be passed-on to the user of the space. In that case, the owner will have to absorb the amount over the stop amount of the increase in expenses. Conversely, a retail shopping center owner typically will pass-on all property expenses to the user without offsets or expense stops. Therefore, the retail center operating expenses will typically be less of an expense burden for the retail owner than for the office building owner due to the contractual (lease) ability to pass-on all expenses to the tenants. This is just one major consideration when contemplating investing in the office building versus the retail center example used here. Different property types will experience different vacancy rates, rental rates and expense ratios and will be market driven. All these factors are important when evaluating a purchase. Lenders also rely on historic market metrics and property operating profiles when evaluating their underwriting criteria as a bases for how much they will loan, what level of income is required to meet the annual debt service on the loan, to many other property operating, market and management factors. Different property types have different operating and expense as well financing considerations that must be thoroughly investigated to achieve success.

Property Location: That old adage in real estate: Location, Location, Location. Yes, it is even true in commercial real estate. A comprehensive analysis of the location factors is crucial for a successful investment program. Due diligence is required and a first step is a geographic analysis that includes such items as the transportation systems, major employment centers, and demographic and economic data to a host of other information useful to assess the broader area where the property is located. A very useful tool to aid in this analysis is GIS, or Geographical Informational System. Once the larger market area is analyzed, a narrower focus on the property market location is necessary to flush-out any particular factor that can add value to the property such as a major employer locating to the market area or any factor subtracting value from the property such as a new zoning ordinance restricting uses and building heights. Once these analyses are done, it is also important to do your due diligence on the specific property under consideration. This ranges from the importance of conducting a structure inspection to environmental/soil studies to all the related legal and physical lot and zoning and other local regulatory assessments to insure no problems or potential problems exist.

Legal and Tax Considerations: There are several different ownership entities that can be used when investing in real estate with their own tax and legal consequences. It is important to have a fundamental understanding of each type and how each type affects you and your tax situation. An experienced team of legal and tax professionals are important to assist in navigating these issues. For example, setting up a LLC may not be the best entity for tax implications. LLCs are a popular vehicle for real estate ownership due to liability reasons, but not necessarily for tax reasons. For example, operating a real estate investment business and having employees may require a different business entity such as a sub-chapter S corporation instead of operating as an LLC. There are too many issues and potential risks to go it alone. Having a team of professionals to handle all aspects of the legal and tax considerations is critical. This can also be said for having real estate professionals who understand not only the property market, but also the capital market, as well as experienced negotiators working on your behalf. Having a team of experienced professionals in your corner is always prudent.

Financing: Today, more than ever, it is a tough credit market. Lenders are not in the lending mood. With the changes in the credit and lending environments it is extremely difficult today to obtain financing for any deal. Gone are the days when lenders would base their decisions on pro-forma estimates for cash flow and property appreciation. Understanding the current situation is not only important, but it is even more so today, crucial for anyone to have a chance for a successful investment program. Leverage was the name of the game in the recent past. It is still important, however, any acquisition will require a higher equity position than in the past, which will result in lower returns than with a higher leverage position going into the deal. Some of the questions then are: How will this affect expected returns on the investment? How will this impact money needed for property renovations and other capital reserves for expected or unexpected major repairs? Is the required use of more funds going-in to the deal (equity) and the resulting return on that money to make it profitable better-invested elsewhere? There are a host of other questions and calculations needed to fully assess the feasibility of financing the deal especially given the environment we are in today. For example, is there a strong leasing market to support asking rental rates and rate increases in the future that will more than cover higher debt service requirements from lenders? Again, having a team of professionals working for you to help evaluate and advise on such issues is an important part of the process and overall analysis.

Exit Strategy: How long do you expect to hold the property? What will be the market when its time to sell? What governmental regulations (e.g., zoning and land use) have changed since the acquisition? What is the credit/lending markets like? What will the demographics and employment projections look like? These questions require a crystal ball to answer. Of course, no one knows for sure. An exit strategy, preferably formulated before the acquisition, is as important as the decision to purchase. The exit strategy should be the basis for any decision to invest or not. The above questions along with a host of other property specific, legal, tax and financing considerations will help to formulate the investment program and its likelihood for success; success here meaning making a profit. Why else would an investor partake in an endeavor without the possibility of a profit? A well thought-out investment program always starts with an exit plan. This is especially true in investment real estate. It is often said that you make your money when you make the purchase. It is also true that you will realize a profit or loss by your exit strategy, or lack of one.

Whether you are an experienced investor with many properties or a beginner contemplating your first deal, understanding and performing due diligence with attention to details of the more important real estate investing processes and engaging in the necessary analysis will go along way toward any successful investment program. Particularly given today’s economic environment, is paramount that investors thoroughly vet-out all issues a property may represent along with understanding financing considerations and the legal and tax considerations to owning investment real estate.

Why Real Estate Investment Makes Better Sense Than Investing in Stocks

There are distinct advantages to real estate investment despite the millions of dollars investors have made in the stock market. In fact, investing in real estate for profit is one of the most popular approaches to generating additional income in the United States today.

In this article, we’ll consider just a few examples to illustrate why careful and intelligent real estate investment might make better sense to an investor than stocks. Before we get started, though, it should be mentioned that investing in real property is not a bed of roses without risk, and does include several downsides worth understanding.

Real Estate Investment Downside

1. Liquidity – Real property typically cannot be converted to cash overnight. Whereas stocks can be sold with a phone call, the process of liquidating equity in a real estate investment can take months.

2. Slow Market Reaction – Real property has a slower reaction time than the stock market and therefore requires more patience on the part of investors. Whereas the ups and downs of stocks are in real time and thereby allow you to gauge your gains or losses minute-by-minute, this is not the case with real estate investing. You might have to wait months (probably years) before you discover the real worth of your investment.

3. Less Certainty about Market Value – The stock market is more efficient when it comes to market value than investment in real property. When you purchase or sell a stock, for instance, you can be sure that the price was indeed the “correct” price for that stock on that day and at that time because the existing price for the stock incorporates and reflects all relevant available information about the company such as earnings. This is not the case with real estate value. The buyer and seller must discover the correct value on their own, whether it is too high or too low. This, of course, is why experienced investors research the local market and use real estate investment software to run and rerun the numbers.

Real Estate Investment Upside

1. Leverage – Real property allows you to borrow money to make the purchase; generally not something you can do when buying stocks. Moreover, the stock market, by law, limits the amount of leverage (margin) you can use to buy stock whereas there are no such limits with real estate. You can purchase investment property with a small amount of your own money without any constraint other than a lender’s willingness to fund the property.

2. You Can Purchase under Market Value – It’s generally tough to find “under valued” stock on a regular basis, whereas-especially in this troubled economy-you can purchase properties at discounts far below market value if you dig deep enough.

3. You Get the Benefit of Depreciation – One of the beauties about investment property is the tax benefit you get through depreciation deduction (or “cost recovery”). Defined as a loss in value to a property over time as the property is used, depreciation is a non-cash tax shelter deduction in full compliance with the tax code in which the government allows you to assume that the buildings (not the land) are wearing out over time and becoming less valuable, thereby permitting you to take a deduction for that presumed decline in the value of your asset.

4. Market Conditions are Localized – Whereas a downturn in the stock market could affect everyone involved wherever they live, barring a national collapse of the economy, home values might drop in one city without affecting property values in other cities. This enables you to protect yourself with a “geographically diversified” portfolio of property investments to hedge against this type of event.

6. You Can Control Property Value – Investment property is unlike other investments because its value is mostly controlled by the investor. With some non-superfluous capital improvements and/or diligent property management, investors regularly increase the value of their investment properties. This is not the case with stocks.

Okay, you get the idea. Investing in real estate is a smart and profitable alternative to the stock market. As stated, real estate investment is not a guarantee to riches, and certainly requires more insight and effort than the “gurus” would have you believe. Still, if done correctly, real estate can prove to be one of the smartest investments you could ever make.

Most Real Estate Investors Realize They Need To Be Taking Real Estate Investing Courses

Many real investors who are starting – or looking to begin real estate investing – wonder whether they should take a real estate training course online, or try to find another way of learning about investing.

Often, it can be confusing to determine which courses you should take when you’re just getting started. Or whether you should take one at all.

Some real estate investors proudly declare themselves as self-taught, like we’ve seen in TV Shows as Property Ladder or Flip That House, while others have extensive training. This can be very frustrating as well. To add to the confusion, when you may have a limited budget. You may wish to invest more of your money into some investment property instead, and less of it in training.

To many, it’s tempting to put off taking real estate training courses until you get “some more cash in the wallet”.

But take heed.

Because although it can be a difficult call, there are some solid rules of thumb to follow.

First, you want to consider how much experience in real estate you already have and what sort of real estate investing you are interested in.

If you are interested in low-risk, long-term opportunities, you may read about “real estate investing” in books and courses. If you already have some real estate experience, you may wish to read up on a particular investment method and speak with other real estate investor’s, or research testimonials online from your computer before deciding to invest in a particular real estate training course.

However, if you wish to make large profits, you absolutely should invest in quality real-estate training courses in order to truly learn the ropes from someone who has been-there-done-that before.

“This is because great real-estate-investing training courses, unlike books and self-education, allow you to ask intelligent questions of your instructor, who should be a real estate investor professional himself or herself. “

This experience is invaluable, especially when you are structuring your first few deals.

If you combine your training courses with actual hands-on training, you will almost certainly be on the path to success. Even better, you will save the many years that most self-made real estate investors have spent on trial and error.

In many cases, quality real estate training courses can be a great investment, because they can save you tons of money and can actually point to new leads. In your real-estate training courses, you will likely be able to network with other people who are interested in real estate investing. You will often learn how to structure contracts and how to find excellent opportunities.

“This knowledge alone can help you pay for the cost of a course, since this knowledge will get you actually earning a profit.”

The key word in all of this, of course, is quality.

There’s no point in taking a particular real estate investing training course unless you are sure that the instructor or creator will provide you with quality skills and knowledge that you can actually apply to deals. When selecting real estate training courses, always look for the most comprehensive programs being taught by actual successful real estate investors.

In summary:

Stay away from courses taught by instructors with no practical hands-on experience.

Look for investing courses that are PROVEN, and perhaps go so far as to offer hands-on training (which may be an additional investment but can be well worth it because you will receive lots of personal interaction with the instructor) .

Compare as many programs as it takes to find one that is within your budget and offers you a quality education.

Make sure there are solid testimonials and endorsements from well-known and respected entrepreneurs

Even experienced investors will often invest in real estate training courses in order to polish up their skills and knowledge. New investors should learn as much as they can from books and from reading free resources and then should move on quickly to classes that can actually help them expand their knowledge and can help turn them into successful investors.

To Massive Profits.