July 18, 2005

Blurb: Equity investors have a broad range of support alternatives. But those who buy revenue property are often on their own.

Real estate clubs can help

By Peter Diekmeyer o Bankrate.com

Like many Ottawa young urban professionals, John Walsh had a good run during the late 1990s tech boom. Walsh, a 37-year old software engineer, worked for several IT firms, including 13 years at Nortel. But despite his success, he knew that the bubble atmosphere wouldn't last forever. So in late 2001 he began to diversify into real estate.

His first acquisition, a four-plex in lower-town was followed by several additional deals in the ensuing years. The moves turned out to be well-timed. Ottawa's estate market, like that of many Canadian municipalities was red-hot and property values were soaring, just as many technology firms began to sour. "If I didn't have my real estate income I wouldn't have survived," says Walsh.

Walsh's biggest challenge was that he was new to the field. Those in his personal network often couldn't give him the detailed advice that successful property owners need. Then one day while taking a real estate course, he heard about the popularity of real estate clubs south of the border, and he immediately recognized the advantages they would provide.

There are two types of real estate clubs. The first consists of a group of investors who pool their money and invest it as a group, taking advantage of their larger capital pool to take on bigger deals than they would have been able to handle individually.

But Walsh was more interested in the second type, which is a loose grouping that gives property owners and other real estate industry types a chance to meet with like-minded people on a semi-regular basis, so they can trade war stories and learn more about the industry.

These clubs tend to have a very small annual fee and often the only cost is a small charge to help pay for the meeting room rental and refreshments. Since there were no clubs in the Ottawa area, Walsh decided to start his own.

"At first there were only six members and we were only getting together informally," says Walsh, president of the Ottawa Real Estate Investment Organization. "But more and more people started showing up. And eventually we decided to set up a more sophisticated structure."

Today the club has grown to almost 80 members, about two dozen of whom show up on the second Monday of each month to build their personal networks, exchange information and to listen to a variety of guest speakers with specialized knowledge. Among the experts who have addressed the groups are a lawyer, tax accountant, building appraiser and even a specialist in handling tenant/landlord disputes.

According to Walsh, the Ottawa Real Estate Investment Organization and clubs like it provide their members with important advantages. "There is a huge support system of financial professionals that provide help for equities and fixed income investors," says Walsh. "But in many cases, property owners and those thinking of buying property, are left out on their own."

According to a spokesperson with the National Real Estate Investor's Association, (http://www.nationalreia.com/) the association has 174 member organizations, but the actual number of official clubs in the U.S. is probably three times higher. And when informal groupings are included the total may run in the thousands. However the trend has yet to catch on in Canada, where there may be as few as several dozen active clubs, including several in Ontario and Alberta, (http://www.reiclub.com/real-estate-clubs/canada.html) as well as the Association des Propriétaires du Québec (http://www.apq.org/).

The Canadian clubs tend to attract a broad mix of participants including real estate professionals, single dwelling owners who may have as little as one tenant and many curious members who are just thinking about investing. According to one seasoned club devotee, it's the mix that makes meetings attractive.

"You get a lot from attending regular meetings," says Les Michaelson, president of the Edmonton Revenue Property Investors Association, which meets the second Tuesday of each month at Rosie's Restaurant in Edmonton. "You can learn how to buy, how to flip a property, how to get financing and how to deal with a tenant that doesn't pay."

Michaelson, who is 49, has been buying and selling revenue properties almost all of his life. He began his career as an agent and during that time got to watch how successful property investors operated. He soon realized that the commissions he was booking were peanuts compared to what could be earned in a hot real estate market. Today he owns 22 single-family homes which he rents out, as well as five multi-family apartment properties. Despite the fact that he can easily afford the best management advice available, he continues to swear by the investment club format.

"It's true that during the past few years, I've been giving a lot more advice than I have been getting," laughs Michaelson. "But I guess that's the way things work. Before I was learning, now it's my turn to teach.

As for Walsh, he's sold most of his properties, but he continues to hunt for the next good deal. "There's a lot of money to be made in real estate," he says. "But you've got to be careful. By trading tips with people who've been through it all before, you can learn from their mistakes and profit from their experiences."

Peter Diekmeyer (www.peterdiekmeyer.com) is the Montreal Gazette's management columnist.

 

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