SSAS Pensions – The Next Property Timebomb?

Matt Siddell is the Founder of Qandor Club. In this article, he talks about exercising caution when it comes to investing SSAS pensions.

Just as retail investors who fell into the trap of minibonds are putting it all behind them, unsecured debt is making a comeback – but this time it wants your entire pension!

Just as the problem with the minibonds was the fact that “pouring more water into a leaky bucket does not fix a leaky bucket”, ultimately developers that operate any form of unregulated collective investment scheme tend to go spectacularly bust and take down OUR investors with them.

They burn through capital that could have gone to a good home and as cash / debt comes in from the investors / SSAS trustees, it feels to the developer that they are scaling their mountain, achieving their dreams, and becoming successful.

But debt is not income nor sales. It has to be paid back and when the rate of redemptions catches up with and eventually exceeds subscriptions, the house of cards they’ve built topples over.

Meanwhile, they outbid us on sites because they have funds to top up the deals they overpaid for, whilst driving nice cars and taking regular holidays that give the illusion of success.

They fund expensive social media campaigns that offer up more cheap debt to their businesses – businesses with nothing on the balance sheet that newbie investors continue to lend to.

And all the while, the bucket continues to leak.

These schemes are unsustainable from the start, which is why genuinely intelligent and financially astute entrepreneurs do not follow suit.

Even if they were legal, if they were a good idea, smart people would do the same, but smart people do not.

Saddling a young business with lots and lots of debt, even if it is cheap, does not always help the business ultimately succeed, which is why so many businesses raise investment through series A, B, C rounds of funding.

That and the fact that investors that lend debt expect to be repaid and businesses with no balance sheet will struggle to repay debt if they fail, same as the skint guy down the pub, so the real questions a smart investor asks themselves is:

“Shall I lend debt with worthless security and potentially lose all my money, or potentially lose all my money and take shares in the hope the business takes off?”

Operators of the unregulated investment schemes do not appreciate this fact, in the same way they turn a blind eye to the regulations or don’t even realise that what they are doing is illegal, unethical, damaging their reputation and ultimately destined to fail.

The debt feels like sales. It feels like income. It feels like profit. But it’s not, because profit does not have to be repaid.

So they eventually go “pop”, and everyone breathes a sigh of relief as one more Ponzi finally collapses, but the investors / SSAS trustees find out all too late that their hard-earned money was in first-loss position or far too close to it and they get whacked with a heavy dose of investors’ remorse as they realise the true return they should have been offered was 20-30% or maybe even 300% if the return was commensurate to the risk.

The operators know that if you offer too much, the investor will be spooked, which is great because they would rather pay 6% than 25%!

Sometimes the developer / trainer / crook explains in this deal that the developer’s “skin in the game” (if there was any) was actually debt and the investor’s capital was equity, attempting to be paid back BEFORE their investor, something that was completely unconscionable to me when I first heard of it, but it happens.

So why do investors do this?

Developers and property trainers offer investors 10% PA to lend to their property business. I’ve seen offers as low as 5%.

They might present them with a glossy certificate, that in reality costs more than the 1-page loan agreement they’ll have them sign without getting independent advice (that should be paid for by the borrower, same as any other loan).

They tell them that they are willing to sign a PG and this will protect them, but the agreements are worthless, not witnessed and won’t hold up in Court – even if the developer DID have the net worth to give the PG some value.

In some cases, “clients”, who are often referred to as “mentees”, a term that continues to make my skin creep, are offered 5-6% PA with no fixed charge on the grounds that their money is not earning this much in the bank – whilst it sleeps safe and sound.

Bringing inflation into the argument gives a veneer of intellect, but usually only because the prospect is not financially astute – a financially astute investor understands the direct correlation of risk and return and does not need to be patronised, thank you very much.

The sharks often teach that you are the average of the five people you spend the most time with and perhaps this is the problem… Because previously others have set up unregulated collective investment schemes or exploited a new crowdfunding platform to try and scale their business, they are led to believe that this is the best path to take, but history has taught us that these “private pools of capital” all too often are the undoing of the developer and the path ultimately leads to a property club that no one wants to be a part of – washed up Ponzi schemes where reputations are torn to tatters.

Your cash, and these days your pension too, is then used to fund social media ads and put down deposits on developments that don’t stack up. Your “investment”, which is nothing more than a cheap loan, has no meaningful security, i.e., a fixed charge over a property at a sensible LTC that’s preferably less than 100%!

When you ask an expert for advice, very often what you are telling them is this: “If you tell me this is a good idea, I will give you £5,000. If you tell me this is not a good idea, I will give you £0. Is this a good idea?”

And SSAS pensions are the unregulated corner of the pension world, so you have to be able to handle yourself; otherwise you could make some very expensive mistakes.

If you ask someone who is regulated, insured, whose clients have recourse and whose livelihood depends on their ability to practice their profession, you’re likely to get a better answer, which is why Qandor only works with regulated IFAs.