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Property Clubs Need Regulating not Buy to let Mortgages says LettingFocus

You may know that the Government wants to regulate buy to let mortgages in the same way as residential mortgages are already regulated.

We have written about the reasons for them wanting to do this elsewhere on this blog and we encourage you to click on the categories at the bottom of this post to read up on the background for this move and our views on whether it was a good move (or not!)

Regulate Property Clubs

However, it’s my view that the Government has really missed a trick on this whole area because what it should be doing is bringing the whole set of activities of so called “property clubs” under closer control within the FSA.

Why?

Because property clubs are responsible for too many would-be Get-Rich-Quick-Property-Millionaires losing huge sums of money.

One of the latest to go down, taking thousands of investors’ cash with them was Passive Investments and you can read more about the activities of this particular company at the Guardian article at the very bottom of this blog.

Many years ago I was on a train from a meeting in Weybridge with a chap who had invested a large part of his dear recently deceased mother’s inheritance with another property club, who had just run a presentation in Weybridge.

I was horrified to hear he had paid over £50,000 to this company for them to buy up 6 properties for him.

As I recall, he was an artist and not a rich man but he had been persuaded to invest by a very smooth talking antipodean motivational speaker. He thought he was doing well.

I asked him if he thought his money was safe. He said “Yes.” Apparently, the risk of the credit boom ending and this company going bankrupt and taking his cash with them, had had not occurred to him.

I gave him my card and said that he could call me if he ever needed help. He didn’t call. Sadly, at the time he was not that interested in my slow route to wealth in property through careful investments, low risk and ethical treatment of tenants.

Six Months Later

Fast forward 6 months and the company he had given £50,000 to had gone bust. Instead of the 6 properties they were supposed to buy for him, they had bought just one. £40,000 of his money had not been used. The firm was not taking calls and his £40,000 was now lost.

Poor man! And yet, perhaps he deserved it for being so gullible, so eager to get rich quick in property and so ready to be taken in by the smooth patter of the salesman.

Property Lease Options

With the demise of so called “sale and rent back”, and the advent of ever so slightly more clued up mortgage financing from UK banks, the property clubs have had to turn to something new to flog to the gullible – and this dear readers is the “Property Lease Option.”

Property lease options or “Let to Buy” is the mantra that pretty well all the old surviving and new property clubs are now preaching.

We have written about what’s wrong with many of these so called routes to riches in other blog posts.

Richard Bowser, of Property Investor News, a mentor of mine and a guy who has been speaking sense about property for aeons (yes, even longer than me) has attacked some versions of property lease option schemes in a recent email I received. Like me, he thinks some lease options work well to improve cash flow for the investor, but he is concerned about lease options taken out by tenant buyers.

We share those concerns and have written about our concerns extensively in other posts - see the categories at the end of this post to read more.

FSA Asleep on the Job

I have written to the FSA, telling them that these schemes are a time bomb waiting to happen which will hurt investors and those "tenant-homebuyers" on the receiving end of some property options – who are principally first time house buyers.

Naturally enough I have had no response. (Readers may be unsurprised by this though. Arch crook and Ponzi scheme purveyor Bernie Madoff has apparently said he did not think any regulatory organization could be dimmer than the US’s SEC until he discovered the British FSA, which is why so mush of his activity was eventually put through the UK.)

Sadly, the gullible and naïve don’t want to listen to boring old David Lawrenson and boring old Richard Bowser, which is fine, though a little sad.

I often think of the man on the train and what happened to him but it is too late for any help for him now.

Spookily enough, some property clubs have taken a leaf out of Madoff’s book. For many of them, you have to be “invited to join” and have, so I hear £100,000 spare capital.

They are clearly after the big fish.

Devious or Dumb

But were the property clubs devious or just bad at business?

I don’t think they all set out to con investors, though some will undoubtedly have set out to do so.

It is just they knew next to nothing about property as an investment - both the opportunities and the risks involved.

It is time to regulate the whole property club business.


MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of landlord information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector


Primarily I am a consultant to banks, local authorities, social housing providers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the broadcast media.


Services for Private Landlords


For private landlords and other investors in the private rented sector, we do just two
London seminars each year.

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.

We pride ourselves on giving independent unbiased buy to let advice on either a one-to-one mentoring / coaching basis or through our occasional group seminars.

With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it.

We also show you how to manage tenants properly.

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Copyright of Blog:
David Lawrenson 2009. This blog is updated roughly once a week usually on a Monday or Tuesday.

TO VIEW RELATED POSTS select a “Category” at the bottom of this page.

Link to the Guardian Article:

http://www.guardian.co.uk/money/2009/dec/07/buy-to-let-investors-fret

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