We review Verto Homes – former CrowdCube startup heads for the unregulated bond market

Verto Homes is offering unregulated bonds paying 10% per year for a 5 year term.

The bonds offer the opportunity to exit after 12 months, however this will naturally depend on Verto Homes having enough cash available to pay back investors who wish to do so.

Funds raised are to be used to build zero carbon smart homes.

Who are Verto Homes?

Verto Homes directors Tom Carr and Richard Pearce

Verto Homes founders Tom Carr and Richard Pearce

Verto Homes Limited was incorporated in December 2010.

Its last accounts show net assets of £2 million, and a profit in the year to March 2018 of £491k, up from a £762k loss in 2017.

Investors should however bear in mind that the accounts were unaudited.

Thanks to its history of selling shares in itself via CrowdCube, Verto has a long list of shareholders, but the people in charge are those with the A shares, co-founders Thomas Carr and Richard Pearce. The other shareholders have no voting rights.

Verto Homes has previously raised money on CrowdCube, with the most recent raise coming in October 2016, when it raised £1.39 million.

How safe is the investment?

Third-party promoters claim that Verto Homes bonds are a “low risk, secure, fixed return investment opportunity”.

The reality is that these are loans to a small unlisted company and carry an inherent risk of 100% loss. The claims by third parties that Verto Homes’ bonds are low risk and secure are highly misleading.

Secured lending on property is not risk-free as there is a risk that if the underlying borrower defaults, the security cannot be sold for enough to cover the loan.

Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left to pay investors after paying the insolvency administrator (who always stands first in the queue).

We are not in any sense implying that the same will happen to investors in Verto Homes, only illustrating the risk that is inherent in any loan note even when it is a secured loan.

If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not Verto Homes) to confirm that in the event of a default, the assets of Verto Homes would be valuable and liquid enough to compensate all investors. Investors should not simply rely on what Verto tells them about their assets.

Verto Homes Limited’s last accounts show that it owns no residential property as at March 2018. Its only tangible assets are £18k worth of machinery and £94k of motor vehicles. £6.1 million of its gross assets consisted of “investments” (mostly not elaborated on in the accounts, although there is a list of amounts loaned to various related companies, which tot up to £1.02 million net). Another £3.9 million consisted of trade and other debtors plus cash in the bank.

As it appears that Verto Homes’ houses and land under construction are owned by other related companies, it is even more essential that investors verify that the assets backing their loan to Verto Homes would be sufficient to enable them to be repaid in the event that Verto Homes defaulted.

How Verto’s third party introducers can claim with a straight face that 10% per year bonds from a company which until recently raised money via CrowdCube, a platform for high-risk startup investment, is “low risk”, is beyond me.

But Verto Homes has for whatever reason decided that the best way to access capital is now via the unregulated bond market and the people who sell them on its behalf, so here we are.

Should I invest in Verto Homes?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any individual loan note to an unlisted micro-cap company, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

Any investment offering returns of up to 11.5% per year is inherently very high risk. As an individual, illiquid security with a risk of total and permanent loss, Verto Homes’ loan notes are much higher risk than a mainstream diversified stockmarket fund.

Before investing investors should ask themselves:

  • How would I feel if the investment defaulted and I lost 100% of my money?
  • Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?

If you are looking for a “low risk” investment, you should not invest in corporate loans with a risk of 100% loss.

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