The different ways of using collective investing in real estate

From Scott Picken

Investors currently have two main options for pooling funds with individuals or companies in order to invest in real estate. Whether Stokvel or crowdfunding, this is based on a principle that uses the collective purchasing power of a group to ensure that everyone involved can acquire ownership of a property. This creates a level playing field for investors, especially in situations where a lack of funds limits a person’s ability to invest in residential or commercial real estate.

Originally since the 19th century in South Africa, stokvels have been used to give people options at livestock auctions as they can be prohibitive to an individual, but harnessing the power of a community to fund the purchase makes it affordable. While both Stokvels and crowdfunding are based on similar principles, the main difference is how group funding is managed and how cash custody is when pledging certain amounts.

The main differences between Stokvels and crowdfunding investments

All investors must do their own due diligence before committing to these forms of financial saving, especially since a Stokvel is viewed as a more informal method. Stokvels are self-regulating in terms of the formation of rules, the responsibilities of each member, the set amount to be pledged and how the group fund is affected if a person fails to meet their financial obligations or leaves the group. “Online crowdfunding enables expanded access to larger communities and networks as well as the beauty of the power of collective buying,” said Riaan van der Vyver, chief investment officer of Wealth Migrate.

Here is an example of how this equity crowdfunding method works in the online marketplace. Funds are raised to buy a large property such as a block of flats. Investors then receive quarterly payments based on the income generated by the property and the individually pledged amounts. Although there is a minimum investment, it is up to you whether you can invest more and possibly achieve higher returns.

The benefits of crowdfunding for investors

Crowdfunding offers a South African investor more opportunities in the local and global real estate market by further developing an online savings program for private and commercial real estate investments.

While the reach of a Stokvel can be limited due to its self-regulation, crowdfunding gets a bigger reach through its digital approach. More potential investors can see it, share it, and choose to participate. In terms of risk and diversification, crowdfunding deals also tend to have a lower risk because they are not tied to fluctuations in the stock market and investors can directly control the diversity of their investment portfolios.

Exciting … is how closely online crowdfunding is related to the behaviors and practices that we as South Africans already use in our lives: Stokvels, funeral homes, fundraising campaigns for churches, school raffles.

Scott Picken is the CEO and Founder of Wealth Migrate