Simon’s Rules for Real Estate Investment Clubs

Written by: David Wilkening

Simon’s Rules for Real Estate Investment Clubs

Whatever your religious convictions or lack of them, Angels are good to have. So the news the other day that a site called AngelsListInvest was looking for investors made me think of Simon.

He was a cheerful, always optimistic and elegant older man who always wore a checked vest and a bow tie. And sometimes one of those old-fashioned straw hats, at least in the summer.

He was not an Angel himself but he organized a monthly meeting of potential investors who attended a $25-a-plate lunch to hear about investment schemes. These were seldom real estate deals but more likely new inventions touted by their creators as the “best thing since sliced bread” (some of them actually said this, believe it or not).

The lunch might attract 30 participants who certainly enjoyed the steak or chicken but were perhaps disappointed that 29 or those 30 were typically not giving out money but looking (usually in vain) for others to provide it.

There was certainly a lot of disappointed suitors but over the years Simon outlined some principles that apply not only to new start-up companies but have applications for anyone who might want so start an investment club to pool resources to buy property.

The advantages of this are obvious: more cash on hand to make larger purchases because investors have larger amounts of money available than single individuals. Economies of scale. They can also take advantage of “fire” sales that have to be completed quickly for one reason or another.

Have you thought about getting your own angels with an investment club? Some of Simon’s rules of conduct, which might help (modified somewhat here because the investment chance or opportunity or whatever else you want to call it) new or start-up companies, advises real estate:

—The first thing you tell investors is that they should use only money they can afford to lose. This should sober them up enough to pay attention to whatever else you say.

—Set a realistic minimum amount for investors. Say $1,000 a share, as a workable but serious number. As an organizer, you don’t want to have to deal with the time and trouble of much lesser amounts.

—Expect an education curve. Many people today are more knowledgeable than ever about how much money can be expected in real estate investments but not everyone is so inclined. So expect to be a good teacher and explain reality.

—Don’t raise expectations of unrealistic returns (see above). For anyone who wants a guaranteed 10 percent return on their money next month or the month after, tell them to look for some loan sharks who might better appreciate their money. Real estate investments require patience and returns hardly ever come quickly (you can almost say never but never say never). Patience is more than a virtue here, it is a requirement.

—Always emphasize risk over rewards. Do both, certainly, and be honest and never, never underestimate the possibility of losing all the investor’s money.

And that’s why you can tell them the Angelic truth: if worse comes to worse, what they invested was only money they could afford to lose. And lunch was also provided.


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Simon’s Rules for Real Estate Investment Clubs

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