Crowd-funded HMO/buy to let – new business opportunity?

Reply to the comment left by "Vanessa Warwick" at "11/01/2014 - 08:31":

Hi Vanessa,

I may not have phrased my question clearly. I was querying your statement:

"As for investors clubbing together to pool resources for BTL, I am afraid that that falls under new FCA regulations and it is illegal to even talk about such a scheme in the open market place, including on-line.".

Are you saying that any person with experience of property investment is now legally precluded from offering to invest in property on behalf of "hands off" investors unless they have a specific qualification?

Yes, that is exactly what I am saying.

All investors you present any JV offering to have to be pre-qualified by you as being suitable to hear about your offering. You have to keep a record of your screening of them to prove that you ascertained their suitability.

If you read the thread on Property Tribes that I linked to, you will understand the far reaching implications of this for anyone making any kind of offering.

Reply to the comment left by "Vanessa Warwick" at "11/01/2014 - 08:31":

Hi Vanessa

I am confused by your statements.

You say the person loaning the money to a peer to peer platform does not make any profits but surely interest is profit?

Gioven that many people lending money to a peer to peer platform might be financing just one loan I fail to see how this is not a collective investment.

I have to admit to not having read the PS 13/3 regulations yet as these things tend to be about as interesting as reading 2000 pages of a 1970's wifi manual. Before I dig into the detail I am trying to gain some perspective of how my landlord peers have interpreted the effects on the PRS. My conclusion so far is that there appears to be mass confusion and a fair dose of hysteria which may or may not be justified.
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Mark,

With respect, its not my job to provide interpretation of the new regulations.

A loan is repayable whether a project is a success or not. A loan is not a collective investment scheme where the return is determined by the success of the project and the loan will not be repaid if the project is a failure.

The thread on PT is very clear about what falls under the new regulations and loans do not. (Although anyone loaning money must have a CCL and present their offering within strict guidelines so that the consumer is clear of the loan terms).

I can clarify your point about the effect on the PRS.

There is NONE whatsoever.

However, there is on the "wealth creation" industry (an entirely separate and non-related industry) because property gurus and experts have been advertising for JV's where there is a share of the profit for the person who loaned the money.

This now falls under the new regulation unless the guru is FCA regulated and has proven processes in place to prove that he has not pitched to what are termed "unsophisticated" investors.

This puts a full stop under sending out emails to databases asking to borrow money for a JV with a share of the profit, offering to loan money to others with a profit share, promoting a JV on a project where financial input is needed, or to post such offerings on-line without knowing if the person reading the message is "qualified" or deemed suitable to receive the proposition.

Unregulated persons looking to JV will have to do it on a much more personal and face to face level, but be aware that the customer might well use the new regulations against them if it does not work deliver the promised returns.

As John Corey on PT says:

PS 13/3 could be a 'get out of jail free' card for any passive investor. If the cash investor is unhappy with a deal they just need to whisper that they are considering a call to the FCA. Talk about leverage if you want your money back.

P.S.

To anyone reading this, please do your own due diligence and make your own mind up about the regulations. Do not use my information as I am only giving broad strokes and it is only my opinion from my own research and understanding.

Reply to the comment left by "Mark Alexander" at "08/01/2014 - 23:04":

Hi Mark

For the record we have taken legal advice and have been advised by our corporate lawyers that we are not affected by the new FCA regulations. So for the forseeable future will continue to offer both our 50/50 profit share model and our 7.5% income only model.

Kind regards
Frazer Fearnhead
MD The House Crowd

Reply to the comment left by "Frazer Fearnhead" at "12/01/2014 - 11:59":

Hello Frazer.

Thank you for the written assurance provided.

Given the rightful uncertainty on this. As a potential client, can you advise how your offer is not required to be FCA regulated?

As a potential investor, I want to ensure my money would not end up on the wrong side of regulation and therefore put my investment at risk?

Have you sought advice from more than one source? Does it include PS13/3 specialists?

Reply to the comment left by "Vanessa Warwick" at "11/01/2014 - 13:17":

Hi Vanessa

Thank you for sharing your research to date. I appreciate this isn't your job but, like me, you do take an interest in what's going on and how it affects our industry. I agree that GRQ wealth creation is very different to being a landlord but sadly their is a dark cross-over point and we both know.

I wonder whether this legislation will become widely known and enforced or whether it will go the way of the estate agency act has done for property sourcers?

Also, ever since October 2004, all secured lending, whether regulated or not, has fallen under the FSA (now FCA) rules of MCOB and hence the rules have incorporated the financial promotions legislation. Therefore, to advertise a loan offering of any kind requires sign off from an FCA regulated business. I agree that a Consumer Credit Licence is required but that;'s only the beginning of it. Therefore, the rules over advertising loan deals have been in place for nearly a decade but the question is, have they been enforced? Is with the property sourcers ignoring the Estate Agency Act, their is no evidence!

It is very clear that there is massive confusion and it will be interesting to see whether the regulators do actually try to do anything to put that right. I can imagine that with the right levels of consumer protection that the market for people investing into peer to peer lending or crowd funded property would be very significant indeed. I also admire the businesses which have built the platform and are ahead of the game in comparison to the large corporates. If it takes off these businesses are likely to get swallowed up by the corporates very quickly but their owners also stand to do very well out of the market consolidation as and when they get acquired.

Good luck to them I say 🙂
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Hi Mark,

Yes, it will be interesting to see how people who flout the laws are dealt with.

The GRQ crowd appear very gung ho about it and carry on regardless.

The biggest concern to them is that, if something goes wrong, the client can go to the FCA and make a complaint ... and then the FCA may well come down on them like a tonne of bricks.

If they are willing to risk that, then that is up to them. The main thing for sites like P118 and PT is to educate consumers on what to look for when choosing an ethical investment company to do business with.

Discussions like this go a long way in supporting that aim.

Reply to the comment left by "Vanessa Warwick" at "13/01/2014 - 10:37":

Hi Vanessa

I agree but the problem is that I remain confused by the new law despite being a bit more up on this sort of thing than most due to my previous financial services based business ventures. On that basis, what chance have others got in respect of understanding it?

I think we both agree that enforcement is the key to this. If/when we see one of these Get Rich Quick guru's dabbling in the PRS taken out by this new legislation that's when we can all begin to become a bit more confident about it.

Another classic example of the ambiguity in legislation is that all mortgage lenders are regulated, even though some of their products (e.g. buy to let) are not. The FCA principles of financial promotions being "clear, fair and not misleading" have been in place for all lenders to follow since October 2004 and yet here we are 10 years later fighting the likes of the West Brom and the FCA not supporting us despite "smoking gun" evidence of breach of these FCA principles and also the principles of "treating customers fairly".

I will celebrate the day we see some enforcement which is relevant to the PRS but I will not be holding my breath!
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