Investor Clubs: How To Tell Bad From Good
The best offer great contacts and advice on getting deals done. The worst just want to sell you CDs.
(MONEY Magazine) – Gail Brunner says her new career investing in real estate wouldn't have been possible without the support she received from the Chicago Creative Investors Association. "It's given me the self-esteem I need to work from a position of power," she says.
When Brunner recently found herself stressing over whether a tenant would buy the home he was renting from her, she turned to the club's longtime president, Jane Garvey, for advice. Stop fussing, Garvey counseled, and realize that you've got options. She went on to outline them, allowing the newbie to regain her composure. "Jane is wonderful--maternal," says Brunner. "She regards all the club's members as friends."
Not every new investor is as lucky as Brunner in finding a good investor club. The best of the bunch offer solid contacts with industry pros--contractors, attorneys, lenders and the like--and sound advice on how good deals get done. The worst are cheerleaders more interested in your wallet than your welfare. And the property boom has sparked an explosion of groups that purport to teach members how to get rich in real estate: The number of clubs in the National Real Estate Investors Association has grown from 44 in 2002 to nearly 160 today, says the organization's executive director, Rebecca McLean. Maybe 500 more operate outside the association. If you're shopping for a club to start your investing career, you'd do well to do some research.
» FIRST, GET NAMES of clubs in your area by going to the national association at nationalreia.com. (Member clubs can offer you access to its nationwide network of contacts.) Then zero in on the clubs that focus on the type of investing you want to do. Snapping up single-family homes on the cheap and rehabbing them for sale is a far different undertaking from being a landlord. Some larger clubs (with rosters of 900 to 1,500 members) claim to do it all; just make sure they have smaller working groups that will focus on your chosen niche.
» TEST-DRIVE THE CLUB by attending a meeting. When you get there, ask members for details about the services that are offered and the quality of their experiences there. You'll also want to see if the setup is one that encourages members to share information and resources. Brunner, for instance, found her mortgage lender through her club, as well as new friends to use as a sounding board. And since all real estate is local, you'll be best off in a club where the preponderance of speakers are locals with insight into the market where you plan to invest.
» STEER CLEAR OF GROUPS that are primarily fan clubs for their charismatic founders. You'll be able to spot these outfits fairly easily: The hallway of the local meeting spot will be wallpapered with posters of the self-styled guru, and you'll find yourself being urged to buy copies of his books and CDs. Worse, in some clubs members spend thousands of dollars just for personalized hand-holding from the All-Knowing One.
Sure, there's an element of self-interest in every club. Garvey notes that to stay afloat, most operations have to sell marketers access to their members. The lecturers she hires typically get a $1,000 fee plus a big chunk of the ticket sales. "We use our portion of the money to pay for the room and our expenses," says Garvey. But beware of clubs that seem to charge for each and every little thing. (One warning sign: fees for lists of member properties for sale.) And your annual costs should not run much higher than $150 to $250, says McLean.
The point here is to make sure that most of the benefits are going your way. If you've found a good club, you'll discover the right connections, the right advice and the right friends to help you celebrate your first successful deal.