Ewald Kellerman, Head of Sales at FNB Home Loans says that investing in property as a club brings with it certain challenges:

• Change in ownership/members of the rental club may be costly. The bank will hold the members liable for the loan, not the club, so if those members change it may have implications on the loan.
• The investment is quite illiquid compared to other options available so if a member wanted to leave the club it could create liquidity issues.
• It is difficult to scale the investment for buy-to-let investments. It is not as easy as buying a portion of the property at a time compared to building up a share portfolio for example. You would need a certain amount of capital to start.
• It requires active management where many other alternatives are passive. You would need to hire a management agency or certain members would have to take responsibility for things such as maintenance, rent collection, finding tenants, etc.
• Buying shares in a listed property company overcomes many of these challenges, but this currently only available in the commercial property sector – in other words you cannot necessarily buy exposure only to residential property.

So be aware of these potential pitfalls if your investment club is considering using rental property as its investment vehicle of choice.