Real estate clubs ride the housing boom

By Liz Pulliam Weston

Investment clubs helped millions of Americans learn about -- and in many cases, get burned by -- the stock market as equities peaked and then dived at the turn of the century.

Now real estate investment clubs are taking up where the stock-market groups left off:

• The number of clubs affiliated with the National Real Estate Investors Association (NREIA), a trade group, has quadrupled in the past three years, from 44 to 178.

• Hundreds more clubs have popped up that aren't affiliated with the association. The NREIA estimates there are now more than 500 groups across the country.

• Established groups that once met monthly are now offering weekly meetings and weekend seminars as membership grows. One fast-growing club in Orlando, Fla., reports membership has doubled to 1,000 people in recent years.

The number of real estate clubs still can't hold a candle to the investment-club phenomenon at its 1999 peak, when the National Association of Investors Corp. boasted 36,151 groups. But that number has since fallen by nearly half, while the momentum is clearly behind real estate.

The smell of money

Just as stock-investment clubs were fueled by double-digit gains in equities, real estate clubs are benefiting from rapid appreciation in many cities. The FDIC says a record 55 metropolitan areas are experiencing real estate booms, defined as 30% or greater appreciation in the past three years.

Interest in real estate clubs is strong even in some markets that aren't booming. Home prices in Akron, Ohio, are up just 3% in the past year, compared with 12.5% nationally. But membership in the local real estate club has grown as low interest rates entice many to explore buying rental or commercial properties, said longtime investor and club treasurer Tom McCombs.

"There's money to be made," said McCombs. "You just have to know where the opportunities are … and be able to (take advantage) when you find them."

How many find the fortunes they seek is unknown. McCombs estimates 95% of the people who attend the meetings in his area either never invest or quickly get out because real estate requires more work, stamina and cash than they expected.

And just as investing in real estate is quite different from investing in stocks, what actually happens at a real estate investment club bears little resemblance to its stock-market counterpart.

Financially, you're on your own

Most stock-market clubs ask members to pool their money, for example, and make decisions jointly.

Real estate groups aren't about joint decisions or communal investments. Instead, they're about education and networking, peppered liberally by pitches for various seminars, books, tapes and investing services.

In fact, some of the clubs are actually for-profit businesses, often founded by a real estate investor with some strategy or service to promote. Even the ones that are nonprofit often turn to speakers who have something to sell.

That fact unsettled David and Sharon Gonzales, who decided to explore real estate investing after watching their home in Hacienda Heights, Calif., double in value since they purchased it seven years ago.

"We're interested in improving our lifestyle and increasing our income," said David Gonzales, a chiropractor. "We've thought about buying additional businesses or taking other jobs, but probably the best prospects for the kind of income we want would be in real estate investing."

The hard sell

The Gonzaleses were among about a dozen people who watched an hour-long presentation on finding foreclosure properties at a recent Saturday afternoon meeting in Glendale, Calif. The presentation was followed by a pitch to sign up for the speaker's "short sales seminar," in which the secrets of making real money on foreclosures would be revealed.

"What I really don't care for is somebody who is giving a presentation who's self-serving," Gonzales said. "Rather than hear what she can do for us, I'd rather hear pointers about what I can do for myself."

Mike Strom, a mortgage-loan officer, wasn't as offended. Strom had already tried and failed to find a suitable foreclosure, and was happy to pay for the speaker's expertise.

"I'm still learning, and I can learn from her," Strom said.

Gonzales was happier with the second presentation by a local mortgage broker, who explained how credit scoring worked in mortgage lending.

"That was excellent," Gonzales said. "I felt he was sincere and gave us a lot of information."

What to look for in a club

Most clubs try to find a good mix of speakers to address a broad range of topics, from foreclosures and flipping to buying commercial and rental properties, said Cheryl Kiser, head of the Central Florida Real Estate Investors Association. Clubs that feature too many self-promotional speakers often alienate members, who won't come back.

If you're thinking about joining a real estate investment club, consider the following:

• Look for clubs that have been around awhile. Older clubs are more likely to have a stable, seasoned membership that can offer valuable advice to newcomers.

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• Attend a meeting or two before you join. Annual membership fees usually aren't prohibitive -- typically $50 to $200. But make sure the club is a good fit before you sign up.

• Use common sense. Seasoned investors will tell you: Real estate investing isn't easy, and no one has a "foolproof secret" for making money. If someone's trying to tell you otherwise, steer clear.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.