the Crowd in Real Estate Investment Clubs
Mired in a stagnant stock market and disillusioned
by other going nowhere savings instruments, thousands of frustrated
personal investors are deciding it's time to "get real" and
join the club: the real estate investment club.
Though not a new concept, the once arcane real estate club seems to be
heading mainstream these days.
Unlike stock investment clubs, real estate clubs don't pool participants'
resources to make buys. Instead, they equip members with the tools to make
their own informed decisions, offering education and networking events
that include speakers, expos, and seminars that spotlight such topics as "Foreclosure
opportunities" and "Rehabbing properties." Members pay up
to $200 annually to join these mostly nonprofit groups, which conduct roundtables
and educational events at such varied venues as eateries, churches, hotel
ballrooms, title companies, and school classrooms.
David Dweck, president of the Deerfield Beach based Boca Real Estate Investment
Club, says his organization has grown to 400 members from only a handful
when he founded it in the mid 1990's. "We have found that there is
a real need for investors to find new resources and do some out-of-the-box
thinking," he says. About 35 percent of the Boca Raton club's members
are full-time investors, 25 percent are part timers, and the balance comprises "newbies
and wanna-be's," Dweck says. Some of the more aggressive members reap
sizable yields from investments while some overly timid ones will never
invest a dime, he says.
Dweck says good real estate investment clubs should have a low-pressure,
collegial culture that motivates and stimulates veteran investors, while
keeping new recruits from making costly freshman mistakes. "If you're
just starting out, you definitely need some means of education before you
jump in and get hurt." Clubs also should help keep members abreast
of legislative issues. When HUD recently changed regulations for "flipping" by
demanding longer term ownership of its homes before resale, "we went
out of our way to make sure our members were on top of that," Dweck
Real estate clubs also can bring together separate, yet compatible, factions
to share experiences and form partnerships. Clubs often bring together
what they call "finders and funders." Vaughan explains, "The
funders are the people who don't have time to look for a good deal, but
have money, while the finders are willing to find the deal, but don't have
the money. They also will put participants in touch with peer endorsed
professionals and contractors, Vaughan says. "For example, they can
make it easier for you to find a reliable real estate attorney, a good
mortgage broker, or an investor friendly title company that will consent
to do simultaneous closings," she says. Such vendor groups often become
members themselves or serve as sponsors to help subsidize club activities.
Vaughan says she's listed a proliferation of new real estate investment
clubs over the last few years, especially smaller ones.
Real estate investment clubs boast of the following benefits:
• Real estate isn't subject to daily price fluctuations.
• First year returns of at least 5-10% are common on real estate investments
• Investment decisions aren't subject to "group think"
• Clubs focus on education and networking, not pooling capital
• The complexities of selling real estate discourage impulse selling
But there are also some things to be wary of:
• No fast liquidity.
• Some clubs are thinly veiled forums for overpriced get rich quick programs
• Clubs may not benefit veteran investors if composed of too many newbies
• Newcomers should never make hasty investment decision shortly after joining
John T. Reed, a real estate book author known as the "anti-guru" of
the industry, says some real estate investment clubs are very useful, "but
others exist to serve the interest of the speakers or a real estate gent
trying to acquire business. You just need to attend a few meetings and
get a feel."
If potential members are considering real estate clubs only to diversify
their portfolio, a real estate investment trust or real estate mutual fund
might better suit their needs, club organizers say. That's because investment
in real brick-and-mortar equities is fraught with legwork and homework
and demands steadfast attention to administrative, legal, and financial
details. " Some people get into it thinking it's a game," Dweck
says. "It's not. It's a business and you have to work to keep up with
it. That's where we can help."
State-by-state real estate investment club listings can be found at REIclub.com and CREonline.com.