In this world, nothing is free. It stands to reason that that holds for starting an investment group. But how much does it cost to start your own group? You’ll need to file the right paperwork, get your group organized, and maybe even involve an attorney… phew, things are starting to add up.
When investing group founders don’t have a clear idea of exactly how much it will cost to get up and running, things can get messy quickly. If your group is going to invest together successfully, you need to start with clear expectations. Giving your tribe members clarity on exactly what they’re signing up for is critical to starting your group investing journey right.
This post will explore the costs of starting an investment group—and we don’t just mean the financial costs. We’ll go over the time and relational costs associated with investing as a group in addition to the cash you can expect to spend.
The Benefits of Starting an Investment Group
Starting an investment group might not be free, but is it worth the cost? Let’s take a look at some of the benefits of starting an investment group.
Investing as a group comes with several advantages. A few advantages include:
- Lower risk: When you invest with a group, your investment is less risky because the risk is spread among all group members.
- Pooling capital: Pooling your funds with a group means more funds to go around. With an investment group, you have more cash on hand to spread your investable capital across multiple investment opportunities instead of putting all your eggs in one basket.
- Teaching and Learning: Forming an investment group lets you teach others about the assets you’re familiar with and allows you to learn about other asset classes from investors with different experiences from your own.
- It’s fun: Investing as a group is a great way to gain knowledge, share ideas, and build strong bonds with the people in your group as you build wealth together!
How to Start an Investment Group in 6 Simple Steps
If you’re interested in starting an investment group, you can reference our beginner’s guide to group investing. Although it may seem daunting, you can actually start an investing group by following a few simple steps.
- Find the right partners for your group. Being selective about who you choose to invest with can help avoid turmoil down the line. Make sure your partners have enough motivation, time, and capital to participate.
- Formalize the group with an operating agreement and an LLC. This adds legitimacy to your investing group and protects all the members.
- Align your group early and often on goals and responsibilities. What type of investments will your group pursue? How will you determine which deals to invest in? How long do you intend to be invested?
- Pool capital in a business bank account. Once your group is aligned you’re ready to gather capital. Opening a business bank account for your group increases transparency and makes it so that no one member ever holds all the group's capital.
- Find a deal and take action. Leverage the group’s knowledge and networks to find a great deal. When your group is agreed on the right deal, make your first investment.
- Repeat! Don’t stop at one investment. Leverage the knowledge and shared capital of the investing group to access better deals and build your wealth together.
How Much Does Starting an Investment Group Cost?
Tribevest has helped over a thousand founders start their own investment groups. Let’s layout the costs associated with starting an investment group and explore how you can save time and money starting a group of your own.
1. Financial Costs
When considering how much something costs, we’re usually immediately thinking in dollars and cents. Though the cost of starting an investment group isn’t just financial, let’s start out by discussing the pieces of the investment group setup process that cost money—and how much.
You may not be subjected to all these costs depending on your investing group. However, the financial costs of starting an investment group include:
- LLC Filing:
To invest successfully as a group, you need to formalize your group as a business entity using an LLC. Your LLC filing fee will vary based on your state, with the cheapest fee costing $40 and the most expensive costing $520. Most states range from $100-300.
- Group Fees:
If you are joining an existing investment group, you may be required to pay monthly or initiation fees upon joining. Fees will obviously vary depending on the group you join, but many groups charge around $80 per month to participate.
- Attorney Fees:
You may choose to hire an attorney or third party to assist you in setting up your operating agreement and other investment group startup processes. The cost here will again vary greatly, however, the average hourly rate to hire a business lawyer runs between $250-350.
- Banking Fees:
Your investment group will need a business bank account to pool capital. You will be subject to banking fees like monthly maintenance and service fees, wire transfer fees, and even overdraft fees if you inadvertently pull too much cash out. These fees will likely all run you less than $20 apiece, but they can add up over time.
- Tax CPA:
You’ll likely want to hire a CPA to help file your LLC taxes properly. The cost to file your business entity’s taxes using a CPA will vary, but estimates hover around the $900-1,000 mark. This price may seem steep, but it is likely less expensive than the fines and fees you may be subject to if you make an error while filing taxes for your LLC on your own.
- Collaboration Tools:
Communication and alignment are essential for running an investment group properly. Unless your entire investment group lives under one roof (and perhaps even then!) you’ll need to invest in some collaboration tools to keep everyone in the loop. Phone calls, text chains, and email threads won’t cut it: You’ll need a more robust tool where you can share ideas, documents, and more. A tool like Slack can run around $30/month.
Lastly, you’ll need to have capital left over after all these upfront costs for the investment itself. This also varies greatly depending on your group size, your goals, and the type of investment you’re looking to pursue.
Get your calculators out! It’s hard to get a full estimate, as these costs are all subject to variation based on multiple factors, but on the low end, you may invest around $1,500 to kick off your investment group. You may spend $3-5K or more on the high end, not including the investment itself. Your group will also have ongoing monthly expenses that you’ll need to plan for.
2. Time Costs
You’ve heard the saying ‘time is money.’ Though you need to consider the cash it’ll cost you to get your investment group off the ground, you also can’t ignore the time investment you’ll need to make to get started.
Let’s take a closer look at the tasks involved in starting an investment group to give you an idea of the time commitment involved in founding such a group.
- Upfront Research:
You should be familiar with this step: You’re doing it right now! As the group's founder, you’ll do a lot of heavy lifting at the beginning of the process. It will be your job to answer questions such as:
- Do we need an attorney?
- How can I file an LLC?
- How do I open a business bank account?
- What system should I use to track communications?
- How will we find deals and decide which ones to pursue?
- How will we find deals and decide which ones to pursue?
- Recruiting Members:
You’ll also need to find and recruit members for your investment group. If you already have a group of friends in mind, this process may be fairly quick. However, suppose you don’t have a ready-made group of eager investors waiting to jump in on your opportunity. In that case, you may need to join online communities or spend time educating friends or family members before they’re ready to commit.
- Aligning Group:
As the leader of your group, alignment responsibilities fall on your shoulders. You will need to invest time and energy into ensuring that every member of your group understands and agrees with the group’s goals, requirements, and responsibilities. If you’ve ever done any kind of project management, you’ll know how time-consuming this can be.
- Managing Communication:
Related to alignment, you’ll also need to manage all communication within the group. Take steps to set up communication channels that don’t leave room for sidebars that could cut group members out of vital conversations. You will also need to manage your group's record-keeping, send out bank statements, track earnings and losses, and more.
- Education Efforts:
Lastly, you’ll need to spend time educating yourself and the other members of your group about potential investment opportunities. This point is especially relevant if you and your group plan to forge into uncharted territory together, like investing in NFTs for the first time or buying your first investment property.
It’s clear that starting an investment group requires hundreds of hours of research and time to get everything set up properly. Tribevest's platform takes away the burden of time by setting groups up for success in 48 hours or less.
Check out our Features and Pricing for more information!
3. Relational Costs
Lastly, we need to consider the possible relational costs associated with starting an investment group. This piece of the puzzle is especially relevant when you are planning on investing with friends or family members.
Any business partnership carries with it the potential for conflict. This is doubly true when your business partnership is built upon an already close relationship. Money can ruin friendships and relationships… However, if you do things the right way, your investment group can bring you and your family members or friends closer together.
It’s important to set expectations upfront and manage group communication. Using a third-party platform like Tribevest you set your group up for success in both your investments and your relationships by formalizing an operating agreement and bylaws together and communicating on an all-in-one transparent dashboard.
Starting an Investment Group The Easy Way
Starting an investment group can be costly in terms of time, money, and relational strain… but it doesn’t have to be. When you invest as a group the right way, you’ll be able to learn and grow together with close friends and family members, building wealth, knowledge, and relationships simultaneously.
The easiest way to start an investment group is to use Tribevest. Our platform provides your Tribe with a proven path to success, including alignment and communication tools, free LLC filing services, a free business bank account, and automated contribution reminders so no one has to worry about chasing group members down to add their capital.
Launching your investment group on the Tribevest platform will save you all 3 costs: money, time, and relationships. To see how Tribevest can get your investment group up and running in record time, register your Tribe for free today!