Can investment clubs/groups purchase real estate or just stocks and mutual funds?
Question by Greg Red: Can investment clubs/groups purchase real estate or just stocks and mutual funds?
I am looking at starting an investment group and I keep finding groups who focus on stocks and mutual funds, but I am interested in real estate also. Is it legal for investment clubs/groups to purchase real estate? Also, what type of paperwork must be filed to operate such an entity (Looking at LLC framework), is there a comprehensive informational resource available that fits my needs?
Best answer:
Answer by N3WJL
Sure they can. The easiest way is to run it as a partnership.
I’ll tell you this much you are looking for a LOT of trouble if you go ahead with this plan. Think about having to get all your partners to agree when it comes time to sell and at agree on the price and offers! Also what happens if one partner wants out and you have to sell off something to pay them off?
You’re better off going it alone or looking into mutual funds that invest in real estate.
Know better? Leave your own answer in the comments!
Of course.
The investments made by an investment club/group are only limited by the organizational documents of the organization. Many investment clubs are organized as LLCs. If you want your club to be able to be able to buy real estate, just include that in your operating agreement as a permitted business activity. Under state law, LLCs can engage in any legal business activity unless you restrict it in your organizational documents. You probably want to restrict it to making investments.
To organize, you simply file Articles of Organization (called different things in different states) with the secretary of state in which you are organizing. It is usually more cost efficient to organize in your home state. After that, you will need to adopt an operating agreement to bind the members and to set forth the types of investments which can be made (virtually any). You may want to restrict investments in hedge funds or the like, but I would probably leave this pretty broad.
betterinvesting.org is an excellent resource for setting up investment clubs. For setting up the LLC, you might want to get an attorney or just go to the secretary of state’s website and get their form. The rubber will meet the road in the Operating Agreement that you will want all members to sign. That’s where you must be careful.
The estate pays the estate tax. This is done BEFORE any beneficiary gets a bequest.
There is no federal inheritance tax. Very few states have one.
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