Property stokvels work on a simple principle – use multiple people to purchase an investment property. If you need to raise R1 million for a deal, you can either raise the money from one very wealthy individual or raise R100k from 10 friends. You could even raise R10k from 100 friends.
It’s all about reducing the buy-in figure (and the risk) by including more people into the deal. This is commonly known as a stokvel in South Africa. Many communities, friends and colleagues use the stokvel concept to raise money for property.
With a stokvel, the community of people regularly contribute an agreed amount on a monthly basis. Once the money saved is large enough, responsible parties in the group make an investment decision.
One of my friends is in a property stokvel. On a monthly basis he contributes R5k per month. He, along with 19 other people, contribute monthly to their capital pot. Every month, the 20 people within the stokvel save R100k. Their plan is to buy a property every 3-6 months with the cash they have saved.
Currently, they are looking at purchasing flats in Berea, where you can buy a 2-bed for R300k. If their community is regular in contributing, they should be able to fund a R300k property every 3 months. This means that they can build a portfolio of 4 properties per year.
List of Property Stokvels
Here’s a list of property stokvels to look into. As always, remember to do your own research before investing.
When you start including multiple people into your deals, structure becomes very important. You need to ensure that you are following the rules and regulations, especially when loaning money is involved. Be sure to speak to a financial advisor and a legal representative to ensure you have dotted the i’s and crossed the t’s.