Real Estate Investment Club - Asset Pooling?
I'm a former stock broker and have thought about this for quite awhile. Why is assett pooling not common in Real Estate investing? Everyone wants to get their own financing and go the route of independent land lording or flipping. Why not pool assets? Is there a law against this? Why is this not more common?
Public Comments
- Probably because of the financing issues. You'd be silly to buy properties outright instead of leveraging them. But you can't get a normal conventional mortgage for 20 people. You could incorporate and lend to the company, but that's hard to find without a proven track record of profitability, so there's personal guarantees on everything. But those guarantees aren't proportional, usually. In general, each person would be joint & severally liable. Those are just a few of the complications I can think of right now.
- This is actually already done. If you do a search of real estate investment clubs, there are tons of options depending on your state. When trying these out, it is important to scrutinize the terms. Sometimes you buy shares of a partnership that owns properties, other times you can be direct investors in the title and deed of properties themselves. There are pros and cons to both. If you are buying into a partnership, the partnership owns the properties and can leverage them, but the resale value of your interest largely depends on the underlying real estate. There are oftentimes very strict rules around when you can sell or assign your interests and your ownership can be very illiquid.
- You can use the "tenants in common" structure to pool assets (up to ~ 30 investors). The loans are complex to secure, and the logistics to coordinate can be difficult. In the 1031 market, a new group of 1031 TIC syndicators have emerged to faciliate the pooling of assets so real estate investors can acquire a fractional ownership in larger properties. The advantage of a larger property are numberous: -often times higher cash flow -often times higher credit quality tenants -can afford professional property management which allows you invest outside your local area
