Property Investment Clubs
What are property investment clubs?
Property investment clubs have had a lot of bad press. They look to take advantage of the discounts offered by some property developers to buy-to-let investors to buy in bulk and frequently off plan.
Many of these property investment clubs have charged unwary landlords large up front joining and membership fees, for the promise of receiving access to the best deals and a large discounts on selling prices. My advice is to steer well clear of them.
Anybody involved in a so called investment club will be making money out of a landlord, whether by receiving a commission from the property developer or from a buy-to-let mortgage company for introducing the residential investor to their buy-to-let mortgage products. A landlord should be wary of about paying out any money just for a badge effectively saying “club member”.
The activities of property investment clubs have come under the scrutiny of the press following DTI action in petitioning the High Court for six companies to be wound up. Sterling Mansion UK, Mansion Investments, Portfolios of Distinction and SMI Overseas claimed to offer help building a £1m property portfolio. Turningpoint Seminars ran courses costing £6,000, claiming to show how properties could be bought without a deposit. CM2 Services offered an investment scheme that it said would give investors 100% returns within 12 months. Following an investigation, the DTI believes the companies should be wound up in the public interest.
Many investors were attracted to property investment clubs by the promise of being able to make large short term profits by flipping the investments originally bought at a discount for a price closer to the original asking price. This practice works in a fast rising market but is unlikely to work in a market where prices are stable unless the investor can secure a very significant real discount.