Perils of Real Estate Investment Clubs

Published on 29 August 2022, 07:22:56 AM

You heard about a nifty real estate investment club (REIC) from a friend. Is an investment club a good idea?

It can be, if you want:

• a portfolio of rental properties

• commercial financing to build a housing project

• a mortgage to buy a business office

• or a share of the debt restructuring market.

   

Five reasons for buying an investment property.

Explainer: Real Estate Investment Clubs in Canada 

What is considered a real estate investment club in Canada depends on the members’ goals. Most are small groups of like-minded investors who pool their money to buy and sell residential or commercial properties.

A real estate investment club can be a partnership, or informal groups who jointly own properties they purchase. Your monthly or yearly membership fee covers the group’s operating costs. Large REICS do the footwork of finding real property to invest in for you.  

That said, what you do in a real estate investment club can be anything from flip fixer uppers, to buy and sell residential and commercial buildings. First time or foreign investors, developers who need financing, and property buyers who don’t have time to manage a real estate portfolio all use a real estate investment club. 

How to buy a hot income property. 

Pros of Joining a Real Estate Investment Club

• Invest in more with less if you have a limited budget to start with.

• Have the security of others to share financial losses.

• Share the work of finding, buying, and managing investment properties.

• Get better at investing by trading off on the skills and experiences of other club members.

Cons of REICs 

• You meet all kinds in a real estate investment club.

• Unless you join a large REIC with its own staff, expect joining a REIC to be a lot like having a job.

• Real estate is a fixed investment. Getting your money out when you need it won’t be as easy as withdrawing it from a TFSA.

• Capital gains are taxable. That and membership, property management, maintenance and legal fees will cut into your profits.

Be forewarned. A real estate investment club isn’t for everyone. Just ask 120 newly disgruntled Canadian investors.  

Epic Collapse Shocks Investors

Their investments in Epic Alliance Inc. collapsed like a house of cards Jan. 19, 2022. “Everything is gone. Everything is bankrupt, guys. It’s all gone,” a co-founder reportedly told investors on a 16-minute Zoom call.

Profit from investment property in Ontario. 

For investors in Epic’s Fund-A-Flip or Hassle Free Landlord Program, the real headache is what to do with the homes they now own or mortgaged. Investors who loaned Epic money through promissory notes have little to show for their losses. The company is alleged by employees to have paid 15% to 20% interest on the notes by recruiting new investors.

The pool of investors lost an estimated $10 to $20 million. Epic’s 504 rental and fixer upper homes, worth around $126 million, are mostly abandoned, boarded up, or in poor shape, former employees say. 

Divorce with investments: who keeps what. 

Our quick takeaway: Investigate before you invest. Check with the Better Business Bureau, ask around with realtors, or go online. Just do some digging of your own before you agree to join a real estate investment club.

Why You Need a Real Estate Lawyer

Axess Law’s professional real estate lawyers give you independent legal advice (ILA) when you contemplate joining a REIC. We can review offers to purchase a REIC may share with you, or give you an ILA certificate if you need it for court.

Get an independent legal opinion before you invest.  

Prefer to buy investment properties on your own? We review agreements of purchase and sale for investors to ensure they protect your right to cancel by mutual agreement. If a seller tries to withdraw, we negotiate with their lawyer to get your good faith deposit back, or to amend the agreement of purchase and sale to satisfy the seller’s concerns.  

Hiring a lawyer for the real estate closing process (Ontario).  

Take the stress out of finalizing mortgages. Axess Law liaises with your mortgage lender to witness your signature on legal documents they need to advance mortgage funds for investment properties you buy.

Documents your real estate lawyer needs.  

Axess Law searches and transfers titles to properties you buy for financial claims or construction liens that can prevent the sale. If your family is part of your investment group, we can add a spouse to property title, or draft a new Will to give joint tenants survivorship rights when you die. 

Hire Virtual Real Estate Lawyers for Less 

Video conference anywhere in Ontario with Axess Law’s virtual real estate lawyers. Sign real estate and mortgage documents online using a home computer, laptop, tablet, or compatible mobile device. Your Axess Law lawyer witnesses your signature virtually, and emails a copy for your records. Axess Law uses secure, confidential video conferencing software to protect your online privacy.

Using a virtual real estate lawyer when purchasing income property. 

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or remotely. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. 

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Close real estate transactions 7 days a week, online or in person. Axess Law has Greater Toronto Area and Ottawa locations near you, or remote real estate lawyers anywhere you are. Make appointments online with our easy web booking form. For personal assistance, dial our toll free lawyer line at 1-877-402-4207 (647-479-0118 in Greater Toronto Area), or pop by any Axess Law location.

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