You could lose your shirt in this hotel venture

Tony Levene reveals the latest scam that promises you big returns for encouraging others to invest in the hotel sector...

When an email offering a “massive 25% commission” to agents and IFAs arrives, it obviously grabs my attention. Even if I secured just one buyer for this “secure and exciting investment” with the minimum £5,000 payment, I'd earn £1,250.

Now if I was an IFA, I would forget about unit trusts with their 3% payment upfront or even insurance bonds which can pay 7%. I might run the risk of crossing a Financial Services Authority line on “product bias” - where you advise according to your remuneration rather than suitability for the investor – and I might well be slammed in a lovemoney.com article.

But who cares? This is not FSA regulated. And as as this is billed as a “simple and effective way” to “generate high returns”, I could probably sell £10,000 worth three or more times a week, equal to at least £7,500 a week (or £375,000 a year ). Now how many day jobs beat that? And, to cap it all, the commission would be paid within seven days.

Reading the basics suggested that customers for this investment would be easily convinced. It sounds so good that they would beg me to let them have a slice of this action – and then a bigger slice.

This deal comes from Room to Invest Hotels Ltd, a company set up on 29 November, 2010, registered at the address of a company formation agent. Money invested goes into the “high yielding hotel sector” where you buy a “fraction” of a hotel and take a share in the income from the rooms. In this case the hotels are in Trzic, Slovenia and Marrakesh, Morocco.

Not only does it have the backing of “freehold property” from an “established operator”, plus “no hidden costs or annual charges”, it – (and who can beat this?) - comes with a three year GUARANTEE of a minimum 8% income, a projected 10% annual income, and up to 10% “projected capital gains from emerging markets”. I admit that I don't fully understand the last point – Room to Invest Hotels did not respond to my calls.

On its website, Room to Invest Hotels explains that it has bought the two hotels and gives this example:

A hotel with 20 rooms costs £2m to buy. Therefore each room is worth £100,000 (£2m divided by 20 rooms equals £100,000).

Each room is then divided in 52 week fractions. Therefore £100,000 divided by 52 is £1,923. So each fraction is worth £1,923.

Four or so months may not seem a long time to become the “established operator” it claims to be. Nor is it much time to raise the finance to buy two substantial hotels. But the quote above is only an example as there is no public record of how much was paid for the hotels, by whom and in what circumstances. It is unlikely that whatever was paid for the hotels is divided up in this way. If it was, where would the money come from to pay IFAs their 25% rake-off?

But maybe Room to Invest Hotels director Richard Henstock, aged 73, confused his company with a previous firm Room to Invest which had a very similar website. Room to Invest, set up in March 2007, is now in liquidation with its last accounts filed in March 2008.

Room to Invest was not the only firm selling hotel rooms on a timeshare or fractional ownership basis to go bust over the past few years. Slices of “Owner Hotel” were sold to the public in 2008 and a liquidator was appointed in 2009; investors were persuaded into hotel ownership scheme Four Pillars at around the same time – it went into adminstration in 2009.

And Guest Invest lost 250 investors amounts ranging up to £460,000 each when it went under in late 2008. It promised a 6% guaranteed return – the original Room to Invest only offered 8% for one year (not the present three). A guarantee is, of course, only as good as the depth of the financial pockets of the organisation backing it.

Guest Invest had a huge publicity campaign including adverts on London Underground stations with the slogan “Earn Money while Others Sleep.” By coincidence, Room to Invest has the slogan “Earn Income while you Sleep.”

Henstock has had a colourful career in smaller companies quoted on the Alternative Investment and Plus markets. But he has not always displayed a Midas touch for investors.

He was the chief executive of Viatrade, formed in 1999. It was a consistent loss making venture. In July 2008, it made an upbeat statement about its role in providing “equity and debt capital for established smaller companies considered by the Directors to have the potential for the generation of significant growth and profitability in the short to medium term.”

But it subsequently failed to file the statutory accounts due in 2009 and went into compulsory liquidation.

Award-winning scams expert Tony Levene explains why he's writing a blog about scams and why he is The Scam Magnet!