5 Steps to Starting Your Own Real Estate Investment Group
Are you planning to start your own REI group? Here are some tips.
Real estate investment groups have the potential to save you thousands, but they can also be very costly on your returns if they are not managed properly or if you enter into the wrong one.
One of the main benefits of being a part of a real estate investment group is that they can save you thousands of dollars and can truly boost the returns on your property. There are plenty of real estate groups that you can join, but these can be costly when you consider monthly fees. So starting your own investment group is one way to get the most value for your real estate requirements. Here are 5 steps and considerations to starting your own real estate investment group.
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1. Choose the best type of real estate investment group
There are two main types of investment groups – formal and informal. Formal is where you pool your money together and formally invest in projects, whether they be big or small. These investment groups are typically structured under a holding company. Informal groups are when a group of investors meet regularly to swap ideas and provide support, but they don’t formally invest together. It is recommended that any new investment group start informal to build relationships, and from there you can start a more formal group to actually invest and start growing your real estate portfolio.
No matter which type of investment group you choose make sure that you include the following as a minimum:
- Collect minimal payments to cover any costs. It should not be on a single person to pay for a group.
- Ensure any legalities are met. A formal real estate group that invests together needs to be done through a Limited Liability Corporation (LLC).
- If necessary, get yourself a real estate lawyer. The small cost of a lawyer can save your group lots in the future.
2. Have Every Member Agree on Responsibilities and Know Where They Stand
If you decide on starting a formal investment group, then you will need to ensure that every member of the group is on the same page about the roles and responsibilities of the group, and there are certain points that need to be defined and agreed upon. These include the following.
- Responsibilities of each member.
- How costs and profits will be shared.
- Make it clear how the group will decide when to buy or sell a property.
- How the properties will be managed, and everyone’s individual roles in the process.
- When and under what terms will the LLC be disbanded.
In order to avoid arguments and disagreements, everything that could come up needs to be written clearly. All questions need to be answered before they are even asked.
3. Nominate a Treasurer to Handle All Payments
One part of a new real estate investment group that is often overlooked is the role of the treasurer. It is important that there is a single person in the group, formally the treasurer, that is responsible for handling all payments. Ensure that the treasurer only acts on the best interests of the group, and only action things that are agreed on through a formal vote.
4. Establish a Formal Application Process for Members.
Your investment group is only as strong as its members, so be picky about who you let join. You will want to establish a formal application process that gathers important information such as their background information and any relevant experience. Ensure that this includes a criminal background check. There are also a few roles that you will want to actively recruit, and be on the lookout for these skill sets:
- Active and passive investors
- Those with relevant experience such as law, skilled tradesmen and even an active real estate agent.
5. Choose an Investment Strategy
There is no single perfect investment strategy for your group to embark on. So you will want to choose the best one for you. Different strategies include the following.
- Commercial real estate (office, retail, or hotel).
- Residential (housing and rental leases).
- REITS and trusts.
You could decide to spread your investments over different types of real estate, but you will be increasing your chances of success by choosing a single strategy and becoming a master of it.
Being a part of an investment group can be a vital part in your journey to becoming a successful real estate investor, but sometimes it can be beneficial to start your own group rather than join an existing one. As mentioned, it is best to start with an informal group, but then you will want to eventually start a formal group to begin the investment process and start realizing some actual profits. There are a few things to consider when starting an investment group, but if managed properly, it can provide great leverage and really be beneficial to real estate investment success.
Charles is the founder of infoSpike.com. He enjoys real estate investing, marketing, and personal finance. Read more about Charles here.