It’s a common misconception that real estate investing is only for the wealthy. While it’s true that you need some money to get started, if you’re smart and savvy with your investments, they can help you build wealth over time.
This guide will explain how to pool resources with family members or friends looking to invest in real estate together.
Cash flow and debt service
To be successful with a real estate investment, you need to be able to afford your mortgage payments. You also need to be able to afford property taxes and insurance, maintenance costs, and any other money that comes up unexpectedly (like water leaks).
Real estate syndication can be a great way to invest in real estate, but it’s not suitable for everyone. If you’re considering this type of investment, understand all the pros and cons before jumping into it.
If one or more of these expenses is too high for you but is affordable for others in the group, and if everyone agrees on what happens when unexpected expenses arise, pooling resources can work well for everyone involved.
You must be sure to review all legal documents and agreements carefully. This includes everything from the purchase agreement to any contracts you enter with tenants or contractors. If you’re not experienced in real estate law, it may be a good idea to consult an attorney before making any commitments.
What is an LLC?
An LLC is a limited liability company that differs from a corporation, with shareholders who can be sued for debts.
An LLC can be formed in any state with fewer regulations than corporations; however, some states require you to pay an annual fee to maintain your LLC status (“filing fees”).
If you’re considering investing in real estate with other people or companies as part of an LLC, ensure that your jurisdiction allows this type of entity before moving forward with your plans!
How to structure your relationship with the LLC
An LLC is also a business entity, with its own life and identity separate from the people who own it. The LLC has its tax ID number, which means you’ll have to file separate tax returns for your income and any income that comes into the LLC (if you don’t want this hassle, consider forming an S-Corp instead).
If you put money into real estate through an LLC, it’s essential to ensure everyone understands what this means: The investors have agreed on how their money will be pooled together.
If there are any disputes about how much each person should invest or where those funds should go toward buying properties or paying contractors/developers/etc., then these decisions should be made before anyone puts any cash into this project.
How to deal with your mortgage lender
If you’re pooling resources with other investors, it’s crucial to understand how your mortgage lender will view the transaction essentially.
- Talk to your lender about the new investment. Ask if they will allow you to invest in real estate and/or an LLC (limited liability company) or partnership. Many lenders are flexible regarding their customers’ investments, but some may not be open-minded enough for this arrangement.
- Ensure all parties involved have good credit scores and sufficient income for their share of the monthly mortgage payment before applying for loans or refinancing existing ones together.
You can also pool resources by joining an investment club
You can also pool resources by joining an investment club. These groups of people come together to invest in real estate as a group, usually with the help of a professional advisor.
Investment clubs have been around for decades, but they’re growing in popularity because of their flexibility and low cost compared to other methods of pooling resources for investment purposes.
There are two types of investment clubs: informal and formal. An informal investment club is any group of people who regularly talk about real estate investments or financial planning. No official structure or rules are associated with these types of organizations (although it’s often helpful if all members agree upon some basic ground rules).
Formal investment clubs typically operate under more structured guidelines than do informal ones–they may even require membership fees and/or annual dues–and often have legal status as either nonprofit organizations or limited liability companies (LLCs).
Pooling resources just makes better sense
Pooling your resources can accomplish more than trying to do it alone.
- The benefit of pooling resources: When you pool your money and time with other people, there’s the possibility that the group will achieve more than any single person could have done alone.
- The benefits of pooling resources with others: If everyone contributes what they can and shares their skills, each member will benefit from being part of the group effort. In addition, members may feel less isolated because they know others are working toward similar goals (and vice versa).
- The benefits of pooling resources in groups: Groups allow members to leverage their skills more efficiently by dividing tasks among members based on who has which talents or interests.
There you go!
As you can see, pooling your resources can be a great way to accomplish more than trying to do it alone. By joining forces with other investors and pooling resources, you can make investments in real property that would otherwise be out of reach for one person or couple.
