While property stokvels are hot topics at the moment, they’re hardly a new idea, and you might be asking why you should take an interest? Many have tried before and not always been successful, so why should you consider this particular type of investment club?
Let’s start with the obvious:
“It’s not the investment club that makes people successful. It’s the people that make the investment club successful.”
South Africa is a country still plagued by massive inequality and one of the best ways to level the economic playing field is to encourage access to land ownership. But how do we go about creating this economic inclusion, you ask, when property is such a huge expense? This is where collective buying power comes in. We truly can do more, together.
Stokvels are traditionally vehicles of consumption. Members make their contributions but the funds are depleted at the end of each year or eaten away by inflation from lying in the bank. To change this, stokvel clubs need a change of mindset: to shift from a consumption mindset to an abundance or wealth-creation mindset. This is crucial for a successful investment stokvel club such as one involved with property management.
A property investment stokvel club provides members with a means to own a share in a larger property portfolio and to do away with a 20-year home loan. Group buying power means properties can either be bought and paid for cash or purchased in a much shorter space of time than the typical 20-year term.
There are some pitfalls, of course, to watch out for in order to make sure your stokvel club succeeds as an investment vehicle for property ownership, but there are already examples of South Africans making it work. Let’s take a look at one:
Nicolette Mashile – Financial fitness bunny
Well-known TV and radio personality Nicolette Mashile, who hails from Bushbuckridge, is also carving out a niche for herself as a blogger (http://nicolettem.com/) who talks about financial fitness and wealth building. She’s recently been outspoken about her plans to start a property stokvel club. Says Nicolette: "The stokvel club is a way of people coming together and finding a way to start (fund) a real-estate business. The company which the members of the stokvel (shareholders) own would hold the title deed for each property.” She emphasises that this is an idea that she’s put on the table within her online community – as yet, they don’t have all the answers and that there are still legalities to work out. She says it is a means to creating generational wealth because the shares in the property company can be left to club members’ children. “Imagine leaving shares to a company with a portfolio of more than 20 properties for your children,” says Nicolette. This is merely one more example of young South African self-starters mobilising towards the property trend through the collective buying power of the traditional stokvel.
Okay, you say. It sounds good. I’d love to own shares in a property investment company that is earning rental income each month and accruing value as the properties appreciate each year, which I can also leave to my children one day. But it sounds complicated. Where do I even start?
Where to start and what to watch out for
Start with people you trust
While it can seem challenging to begin with, the best place to start is with the right people, right from the beginning! You want to look for like-minded individuals, who understand business and who understand real estate and the benefits of property as an investment, and who are willing to go for it with you for the long haul. You want to be careful about sifting out those who want to be involved for the benefits, but who are not actually committed to the long-term goals and success of the initiative. One way to go about making certain new members who’d like to join are truly committed is to ask for a one-time joining fee. If they’re not prepared to pay the joining fee, it shows that they’re not really serious about investing. Also, ideally try to keep clubs to no more than 20 members (it becomes impersonal if the club is too big). Experts advise eight to 10 members is ideal.
“It’s not the investment club that makes people successful. It’s the people that make the investment club successful.” So says Shaun van den Berg in his guide to setting up investment clubs (available online).
Do your homework
Lay out a clear binding constitution for your stokvel investment club. You are ultimately aiming to become a registered real estate company and this should be mentioned in the constitution. You may need to vet one another as members (including looking at payslips, credit records etc.) to ensure that the people you are going into business with are the kind of people you want to go into business with, because ultimately you will be shareholders of a business in the future. Determine rules and penalties for defaulting. What will happen when someone defaults on their contribution? What will the withdrawal process be when someone wants to take money out of the club or later on, sell their shares in the business? What will the buyout process look like? You must create an exit strategy on paper for your investment club.
These tips and more are part of due diligence which every potential business owner must work on before launching new ventures in order to protect themselves from unnecessary disputes and legal battles further down the line. Decide on who will be your club chair, your chief investment officer, club secretary and club treasurer. Remember that each of these have unique roles to fill and ensure that the people selected or nominated for each role are a good fit and can be relied on to perform their duties with care. Decide on a regular set meeting day and time. We are creatures of habit and if you know the first Saturday of the month is your stokvel property investment club meeting you are more likely to stick to it. Try to make meetings educational and sociable as well.
Set realistic short-, medium- and long-term goals for the club. Perhaps your short-term goals to begin with include all the necessary paperwork involved in registering the club. Perhaps medium-term goals include ensuring all members commit to contributing R2 500 per month for the next 12 months in order to purchase the first property. Perhaps a longer-term goal would then follow that you’d like to register a formal PTY Ltd property management company prior to your first property purchase.
Insist on good record-keeping as well as transparency and accountability
The treasurer and secretary need to be highly conscientious about record-keeping, one pertaining to the finances and the other to attendance, agendas, minutes and general club communication. One of the ways to ensure transparency and accountability among all members as well as keep them up to date on club activities is via the StokFella app – South Africa’s fastest growing stokvel management tool. StokFella makes payments and claims so much easier for members and also keeps you updated on upcoming meetings, withdrawals and much more. To register on StokFella, visit www.stokfella.mobi.