The Buy2Let Cars scheme collapse has left many investors out of pocket. It’s an unfortunate story, but it’s important to know what happened so we can protect ourselves from these high-risk investment schemes in the future.
You’ve seen the headlines. Buy2Let Cars have collapsed and left investors high and dry. Don’t fall for these schemes.
Hi everyone, I’m Martin Bamford and I’m here to tell you a few things about Buy2Let Cars that will help you make an informed decision before investing your hard-earned money in schemes like this.
Buy2Let Cars have entered administration this week. Not long after the city regulator, The Financial Conduct Authority ordered it to stop accepting new investments because of concerns they had about the company’s finances. Before they collapsed, the company described the FCA notice as “bizarre” and they accused the FCA of placing jobs at risk.
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Buy2Let Cars was a car hire scheme. They promised big returns to investors, using the money to buy cars, which they subsequently hired to people with poor credit ratings. Investment returns of up to 11%, a year, were being promised to investors who were asked to lend the business, a minimum of 7000 pounds over a three year period, Buy2Let Cars use that money to buy new vehicles, and then lease them to people with poor credit history via a sister company called Wheels4Sure.
In return for their investments, investors were supposed to receive monthly payments for the term of the loan with interest also added at the end of the three-year term.
As I read through this, so many red flags. This structure of investing, where investors are asked to lend money to an unregulated business, this investment structure is unregulated it’s not subject to FCA regulation. As a result, investors don’t get the level of consumer protection they would receive if they had invested via a regulated business, which means that investors will not have recourse now to the safety net of the Financial Services compensation scheme the FSCS. However, as we’ve seen today, the FCA can stop Buy2Let Cars from arranging new leases or accepting new investor money.
I think we can learn so many lessons from the collapse of Buy2Let Cars, and while I feel sorry for investors who will lose money as a result of getting caught up in this, as I said the warning signs were there. If something looks too good to be true, it usually is. I don’t know how many times we need to say that.
This scheme was offering an 11% annual return to investors. On a good day right now you might get a 1% return from cash savings in a bank or building society account. There is an unbreakable link between risk and reward. If you want the potential for a greater reward from your investments, you have to be prepared to take more risks with your money. And those risks do include the loss of income and the loss of capital. Reading through some of the press reports about the collapse of Buy2Let Cars, there are stories of investors who are losing their entire life savings.
One anonymous review on Trustpilot said I’ve invested over 60,000 pounds in this company. Could someone help me on what to do next as no one is picking up their phone.
A fundamental principle of investing money is diversification. Do not place all of your eggs in one basket. You should spread your investments across multiple asset classes, multiple investment companies because if one goes wrong, you still have your other investments in place. This concentration risk is something we see increasingly amongst investors who are placing their money at the risk of a complete loss.
You also have to question the wisdom of an investor who places their money with an unregulated business. There is no need to go outside of authorized and regulated UK financial services businesses when it comes to investing money. Regulation is there for a reason. It’s only when a company is authorized and regulated by the FCA that you get access to the independent complaints arbitrator of the Financial Ombudsman Service. And that safety net of the Financial Services compensation scheme.
Regulated businesses also have to operate in a manner that is fit and proper. They have to be well-capitalized. They have to hold professional indemnity insurance. They have to segregate client assets away from their business assets. So in the case of a business going bust, the creditors cannot call on client money to pay their debts.
Sadly, this does already appear to be another example though of regulatory failure. According to press reports, the Financial Conduct Authority was first warned about the issues with Buy2Let Cars back in 2019. They were told back then, the parent company Raedex Consortium had massive losses, liabilities far exceeding their assets, and the financial situation was getting slowly worse, year after year. But they didn’t intervene until now.
There are some concerns raised in the press articles that this business was trading, while insolvent which is illegal in the UK if that proves to be the case. They had 14 million pounds worth of assets, their fleet of cars, but liabilities outstanding of 34 million pounds. The businesses had lost 10 point 5 million pounds over the last three years. And according to the FCA notice, they wouldn’t be able to pay their debts, which include repayments to investors, unless they could find and raise a further 34 million pounds of assets over the next three years, which made their financial position their business model unsustainable, and it was placed in investors at direct risk of loss.
According to the FCA, the company claimed to own 1200 cars. But there were some question marks over the value of these assets. They looked at a sample of 102 vehicles, and 55 was second hand. That’s even though Buy2Let Cars were claiming that used vehicles were the minority of its fleet because the business model relied on securing deep discounts when buying new cars. Several of the vehicles in their sample of 102 cars could not be found on the DVLA database. And 18 leases in respect of those 102 cars were registered as having started significantly before that vehicle was on the road
Accounting firm RSM has been appointed as the administrator, and will obviously do its best now to recoup funds for investors, but I have to say this does not look good.
Look, I don’t know how many times we have to see examples like this before people stop putting their money in stupid things. I get that the return on cash right now, and the return on many asset classes indeed does not look attractive. We are in a historically low-interest-rate environment. And I can understand the appeal of these attractive looking investment returns, especially when it’s backed up by fancy marketing and a good story, but nothing good comes from going off-piste with investments. Nothing good comes from investing money in unregulated businesses where you don’t have those safety nets in place.
Please seek professional independent financial advice before you start going into non-mainstream assets and investments like this. Get a second opinion at the very least, and don’t expose all of your money to schemes like this, even when they have a relatively high minimum investment requirement. If an investment scheme requires you to tie your money up for a minimum term of three years, that should probably raise some red flags too.
Investing is not fundamentally difficult to do well. Stick to mainstream investment assets like equities, fixed income securities and commercial property, diversify your portfolio so you’re not overexposed to one particular investment type. Invest for the long term, and be prepared to ride through short term market volatility. Link your investment decisions to your overall financial planning goals. So you’re investing with purpose, not just for the sake of trying to grow your capital. And please, whatever you do stick to authorised and regulated investment providers,
Investing like this may not be sexy and exciting. In fact, the best investing is quite dull, it’s boring. But it does dramatically reduce your chances of getting caught in a collapse like this, and risking the total loss of your investment.
I look forward to the inevitable inquiry into the role of the Financial Conduct Authority in all of this. I don’t look forward to the inevitable attempt to dumping the compensation costs on regulated financial services businesses through a levy on the Financial Services compensation scheme. That must not happen in this case; this was not a regulated business, there was no expectation from investors to have access to the FSCS should things go wrong.
But please, please use this as an example of how not to invest money in this type of scheme, you must avoid at all costs. And if you’re in something that looks even slightly similar to this to Buy2Let Cars. Get out before it’s too late. Don’t wait until the inevitable happens.