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How to Start a Real Estate Investment Group [3 bonus strategies] - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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A real estate investment group can save you
thousands or it can be a huge drag on your
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returns.
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In this video, I’ll show you how to start
your own real estate investment club to get
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all the benefits without the costs.
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I’ll show you how to structure two types
of groups and pick the one best for your needs.
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Then I’ll reveal three property investing
strategies that will mean double-digit returns
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for your portfolio.
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We’re talking investing in real estate for
beginners today on Let’s Talk Money!
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Beat debt.
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Make money.
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Make your money work for you.
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Creating the financial future you deserve.
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Let's Talk Money!
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Joseph Hogue with the Let’s Talk Money channel
here on YouTube.
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I want to send a special shout out to everyone
in the community, thank you for taking a little
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of your time to be here today.
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If you’re not part of the community yet,
just click that little red subscribe button.
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It’s free and you’ll never miss an episode.
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So those of you in the community know, I’m
a big fan of real estate investing.
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It’s where I got my start as a commercial
property analyst, I’ve managed my own rental
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properties and truly believe that everyone
should have real estate in their portfolio.
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But that’s not to say I haven’t made some
major mistakes that cost me a lot of money.
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Like the time I bought a house at the sheriff’s
sale and then had to spend the better part
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of a year getting control of the property
from squatters.
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Or all the times I lost months of rent because
I didn’t do a full background check on tenants
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before letting them move in.
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Now mistakes by beginner real estate investors
is nothing new, it’s almost a rite of passage,
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but it doesn’t have to be the case.
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In fact, starting a real estate investment
group may just save you tens of thousands
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and boost your property returns.
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We’ll talk about the two types of investment
clubs you can use, how to structure it and
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find investors for your group.
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Then I’m going to reveal three real estate
investing strategies you need to use with
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your group to not only protect your portfolio
but also to increase returns.
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So there’s two ways a real estate investment
group can work, one formal where you put your
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money together and invest as part of a group,
and another informal where you’re just exchanging
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ideas, learning together and help each other
out.
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We’ll talk about both ways here including
how to set up and structure that formal investment
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group so you don’t run into problems.
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Now do a search for local real estate investment
clubs and you’ll get plenty of hits from
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private groups to those set up by the real
estate investors association.
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The problem with these franchise groups is
that most charge up to $100 a month on membership.
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Basically they’re just schools or course
programs with little real ‘group’ interaction
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and do the math.
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Even a $50 monthly club fee becomes a 2.4%
annual drag on return for a $25,000 portfolio.
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So look around your area for what’s available
but I want you to consider starting your own
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club as well.
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Now I want to show you how to structure your
group and find property investors to join
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but first I want to get your opinion on this.
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I want to do more real estate investing videos
on the channel and want to know, which property
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types do you want to see analyzed, commercial
or residential real estate?
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I know residential rentals are hugely popular
here on YouTube but I love commercial space
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like office, storage and retail for solid
returns and less stress and this is actually
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going to tie in with one of those strategies
I’ll reveal towards the end of the video.
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So which are you interested in seeing on the
channel, analysis of rentals or commercial
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property.
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Just scroll down and let me know in the comments
and why you like that specific property type
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better.
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Structuring your real estate investment group,
first you want to decide whether you’ll
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have that formal investing group or the informal
group just exchanging information first.
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Usually what I suggest is starting with that
informal group until you get to know some
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of the members and maybe create a formal sub-group
with a few serious investors.
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That informal idea is basically just a once
or twice-monthly meeting where you might have
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a learning piece, maybe a presentation by
someone or you talk about a course everyone
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is taking.
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You can collect minimal dues to pay for speakers
and group courses.
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The formal group where you’re pooling money
to invest in projects needs to be done through
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a limited liability corporation or LLC.
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This is where you’ll write up a corporate
code, choose a name and get an EIN from the
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IRS.
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Now the business is going to be what’s called
a pass-through so all the profits and expenses
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will pass through to the individual members
and you won’t have to file corporate taxes.
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We’ll talk about who you want to have in
your group, both for the informal and formal
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types, but it helps to have a real estate
lawyer because you’re going to need to write
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up these documents and have them reviewed
before you file.
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You need to spell out everyone’s responsibilities,
their share in the profits and expenses, write
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out how the group will decide when to buy
or sell a property and whether one person
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or a majority can force a sale.
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You want to set out how a fair price is determined
for an investment, how the properties will
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be managed, how voting rights and meetings
will be conducted, how much profits will be
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dispersed versus reinvested and finally when
and under what terms will the LLC be dissolved.
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The point here is you want to formally spell
out the answer to any question before it comes
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up.
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That way everyone knows exactly how this thing
is going to operate.
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You also need to set up a separate checking
account for the business and use absolutely
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no funds from personal accounts.
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Only one person, the group Treasurer, should
be responsible for handling all payments,
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investments and disbursements and only with
a vote from the group.
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So yeah, this kind of formal group where you’re
putting your money together is a big decision
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but it can mean some huge leverage.
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You’ll not only be able to go after bigger
deals but everyone is going to have a vested
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interest in driving success.
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And it’s not limited to real estate groups,
some of the most successful investment houses
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got started as small limited liability groups,
for example Warren Buffett and a small group
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of his family and friends in the 50s.
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Once you know how you want to structure your
investment group, and again, I’d say start
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out with an informal group and grow into the
other.
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You’re ready to start looking for other
investors to join.
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Understand you don’t need a big group.
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Even five to ten active members is more than
enough if you have the right roles but maybe
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you start with around 15 to account for people
coming and going.
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Building a group really isn’t that tough.
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It starts with yourself and one or two others
becoming champions for the project.
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Just three real estate investors, reaching
out through your collective networks of contractors,
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attorneys and other investors can easily put
together a group of ten or so enthusiastic
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members.
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You’ll want a formal application process
that gathers background information and experience
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on candidates.
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This needs to include a criminal background
check and can be paid out of an application
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fee or dues.
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You might also ask candidates to prepare a
10-minute presentation on what skills or experience
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they can bring to the group.
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It’s up to you who you let into the group
but there are a few roles that are going to
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be extremely useful and you want to actively
recruit.
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You want active investors as well as some
people that are interested in investing in
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real estate but would rather play a passive
role where they just put up the money but
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don’t have a role in management or development.
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You want some contractors, some people in
the skilled trades or at least someone with
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some property development experience.
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A real estate lawyer and an agent or two will
also really come in handy.
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Now if you’re setting up a formal investment
group, it’s also going to be important to
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spell out these roles as well as how people
bill for their time.
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You can’t expect a real estate lawyer to
spend as much time on the project as maybe
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a carpenter and still get the same share in
the profits.
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Spell out when you’ll use each other’s
services in the project and how to determine
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a fair price for billing.
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It can seem like a lot and it is to set up
but I guarantee it’s worth it.
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After a first few tough years in real estate,
I set up an informal group and it made all
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the difference in learning the ropes and being
successful.
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Now I want to share three real estate investing
strategies you can try in your group or on
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your own.
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These three strategies are ones that a lot
of investors don’t know about or just neglect
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but can mean a big boost to your bottom line.
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First is I want you to consider commercial
properties.
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I know it usually costs more to get into commercial
spaces like office, retail or hotel properties
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but these can be great additions to a residential
portfolio or just by themselves.
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The return is similar and often higher and
the grey-hair factor, that stress from running
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these commercial properties, is about a tenth
what it is with rentals.
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For example, a common lease structure for
commercial property is called triple net or
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NNN, where the tenant pays for all expenses,
repairs and even taxes.
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The property owner pays nothing, just sits
back and waits for the check each month.
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The second strategy, and this is one I detailed
in another video on seven ways to invest in
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real estate with no money, is called the lease
option.
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One of the biggest headaches to rental properties
is that tenants just don’t take care of
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your property.
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I had to rent a large Uhaul truck each time
a tenant left or was evicted, and we’re
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not talking the pickup trucks.
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We’re talking the 15- and 17-foot trucks,
I would rent it over the weekend, fill it
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up with all the trash and stained carpet and
shit they’d leave behind, then unload it
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at the dump first thing Monday morning before
getting to my day-job.
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With the lease option though, you help solve
this by giving the tenant a reason to take
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care of the house.
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How it works is, you rent the house out as
a lease option or contract sale.
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You and the tenant agree on a purchase price
and interest rate and they give you a down
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payment.
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The rest of the price is structured as a 15-
or 30-year loan, financed by you and the tenant
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makes monthly payments.
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Most of these have five-year terms where the
tenant has to refinance the remaining balance
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or pay off the loan.
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Not only do you get a tenant that takes care
of the house like their own, but you can usually
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get a decent interest rate since you’re
acting as the bank.
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Some of the houses will be paid off while
others will come back to you, keeping the
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down payment and any money collected.
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I’ll link to that video, the seven property
strategies you can start with no money, in
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the video description below so check that
out for more detail on this one.
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Our next strategy is to consider combining
your direct ownership in property with some
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indirect investment through REITs and crowdfunding.
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One of the most common mistakes new real estate
investors make is putting all their money
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in the local market or in just one property
type.
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This is hugely risky, not only for problems
in that property type but for risks to the
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local economy.
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You wouldn’t put all your money in shares
of just one company so why would you do it
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in real estate?
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Now most investors can’t afford to have
15 or 20 real estate investments in the different
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property types and across the country so the
next best thing is getting that exposure through
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indirect investments like real estate investment
trusts, REITs, and real estate crowdfunding.
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REITs are real estate companies set up to
manage commercial property and pay out the
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majority of profits as dividends.
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Real estate crowdfunding is similar but has
a few advantages in the differences like lower
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cost structure and transparency.
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Click on the video to the right to see those
seven ways to invest in real estate with no
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money.
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Seven strategies I’ve used to build a property
portfolio on little or no money.
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Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button
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and clicking the bell notification.
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