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Cooperatives are established by a people with a common goal, typically to save money as a group and lend to members who need funding. They may also scout and invest in opportunities that could help members grow their money. Real estate cooperatives function in much the same way. Members contribute to a common pool of funds, part of which may be used to finance the purchase of land and the construction of housing. Returns from the investment will accrue to members. If you’re wondering how this is any better than the other ways of investing in (or raising funds for) real estate, here are some reasons you should consider starting a real estate investment cooperative.
The Benefits Of Real Estate Investment Cooperatives
- A properly constituted and registered cooperative will have limited liability. In other words, their financial liability for the cooperative’s debt is only limited to the value of their share in it.
- They don’t have to pay company income tax, stamp duties, or other taxes applicable to regular businesses
- There’s less regulatory oversight for cooperatives than there is for registered companies
Steps To Setting Up A Real Estate Cooperative
Here are the steps you should take to establish a real estate investment cooperative.Get Founding Members Together
The first thing you’ll want to do is to find people who are interested in starting a real estate cooperative with you—people who have the goal of investing in or owning real estate. These could be your coworkers, people in your community, your friends, or other contacts who you can trust. You should have at least ten founding members signed up before registering the cooperative; that’s what the law governing cooperatives requires. There’s more on this shortly.Determine How The Cooperative Will Function
You will have a lot to iron out here. First, you need to determine what structure the cooperative will take; how shares in it are allotted, and on what basis; how decisions will be made; how votes are cast and considered; and what the entry and periodic membership fees should be. The requirements for membership and functions of the group (including the provision of micro-mortgage loans and investment opportunities for members) will be clearly defined.Sign up to the Connect Nigeria daily newsletter
Rules should be contained in a constitution (and/or bye-laws document), which will guide the activities of the cooperative. Everyone should agree to abide by the rules; penalties for not doing so have to be stipulated in the constitution as well.
Register With Appropriate Authorities
In Nigeria, formal cooperative societies are expected to be registered by the Director of Cooperatives in the state in which they are located. This office may be domiciled within a specific ministry in that state. For example, cooperatives in Lagos are registered and regulated by the Ministry of Commerce, Industry, and Cooperatives. An application for registration submitted to the Director of Cooperatives should be signed by at least ten people who are qualified to be members of the cooperative. The application should also include the following:- Certified copy of the first meeting of group’s first meeting with the Province Cooperative Officer
- A Feasibility Study report detailing how the society will function
- Four copies of the cooperative’s bye-laws
- Prospective members’ letters of intent to join the society
Establish A Working Relationship With Partners
If you’re going to successfully run a real estate investment cooperative, you will need to establish a working relationship with partners who will make the society’s operations a smooth sail. This is extra-important if there’s little or no real estate expertise within the group itself. Partners the cooperative could work with include microfinance banks, mortgage institutions, developers, building industry professionals, and building materials manufacturers and suppliers.Final Words
Besides being a great investment vehicle, real estate cooperative societies can also help bridge Nigeria’s housing deficit. They are bound to become even bigger players in the space, as the demand for housing and investment opportunities grow. Featured Image Source: The Guardian NGGot a suggestion? Contact us: editor@connectnigeria.com