Can anyone recommend a source to guide me into setup and running a small REI club? I have about 5 friends that would like to start investing in real estate, but I dont know how to start it or run it. Recommendations???
You and your friends can start an investment club by forming a Limited Liability Company (LLC) as an LLC is a hybrid entity that is very flexible and depending on how many owners (Known as Members) would be considered a partnership by default for taxes if it has multiple members.
For tax purposes an LLC like a partnership or sole proprietor is a pass through entity making income and losses taxed at the member level! All members will be protected just like an S-Corporation, and will have limited liability for debts and claims against the LLC.
An investment club can have as few as one (1) member or as many as one hundred (100) members. Each member will become owners of the LLC by making a capital contribution into the company in exchange for ownership units. Ownership entitles a member to an allocation of profits and losses related to investments, but the club makes no profits and members are assessed operating costs.
Initially members can start with as little as $25 dollars per unit with a limit of 1 ownership unit per member. Initially there may be one member but as others are added this permits the club to eventually have upwards of 100 members. Each member acts as a general partner jointly making decisions with every other member!
The investment club is structured to admit members as individuals or businesses who will all act together as day to day management, in addition to making capital contributions all members must be active in participating in proposals and decisions to avoid the units being considered “Securities”!
I hope this helps.
If you are going to be pooling funds into a company and all taking a part of that company, then by all means, GET AN ATTORNEY TO DETAIL STUFF UP FRONT!!! While it all seems good and a handshake works, I guarantee you that as time passes, views change and people want out, won’t live up to their end of the bargain, etc.
An attorney that specializes in partnerships and entity creation should have solid Operating agreements, that clearly detail each partners stake, their roles, interests, responsibilities, and for me the most important thing is how to get OUT. Either willingly or “not-willingly”.
Don’t skimp on this up front. It will either cost you some now, or a ton later.