Property litigation expert warns of rising fraudulent rent-to-rent schemes targeting unsuspecting investors
Key Points:
- Property litigation solicitor explains how fraudulent rent-to-rent schemes operate and the recent police investigation into suspected investment fraud
- Expert highlights warning signs of property investment scams, including guaranteed high returns, aggressive sales tactics, and lack of FCA authorisation
- Legal specialist advises extreme caution with any investment scheme promising guaranteed high-yield returns in the property sector
Investment schemes promising “guaranteed” high returns and passive income are flourishing online, with property investment opportunities being particularly attractive to those looking to grow their wealth. However, behind the polished marketing and enthusiastic testimonials, some of these opportunities may be elaborate scams designed to separate investors from their money.
Recently, there has been an alarming increase in questionable rent-to-rent (R2R) schemes, particularly those offering fractional investments in residential or commercial properties. These schemes often target inexperienced investors through social media platforms with promises of substantial, risk-free returns.
Alex Cook, a property litigation solicitor at Helix Law, a specialist litigation firm based in the South of England, explains why investors should be wary of rent-to-rent investment opportunities that seem too good to be true.
“The property sector has seen a concerning rise in dubious investment schemes lately,” says Cook. “Understanding how legitimate rent-to-rent operations work versus potentially fraudulent ones is vital for anyone considering this type of investment.”
Operation Lily: A Recent Investigation
Operation Lily, an investigation by the City of London Police Economic Crime Department, led to the January 2025 arrest of four directors of two companies — Citygate Housing and Social Housing Holdings — on suspicion of fraud and money laundering.
According to Inside Housing, the police believed both companies offered “investment opportunities within the social housing sector”.
Online platforms like Trustpilot, Reddit. and Facebook are rife with posts by people claiming to be Citygate Housing investors who lost significant sums by believing slick marketing materials and pushy sales tactics promising a 20% guaranteed annual return.
“Social media has become a breeding ground for these investment schemes,” explains Cook. “Many investors first learn about so-called ‘passive income’ opportunities through paid ‘education’ or ‘training’ advertised on platforms like Reddit, Facebook, and Instagram, creating a perfect environment for misleading information to spread rapidly.”
As of March 6th, the directors’ names of Citygate and Social Housing Group have not been released, and no charges have been filed.
Regardless of the outcome of that specific case, combining aggressive sales tactics with guaranteed high-yield returns is a hallmark of another kind of scheme…
The Ponzi scheme.
What is a Ponzi Scheme?
A Ponzi scheme is a type of financial fraud where existing investors are paid returns using capital from new investors rather than legitimate profits.
“Ponzi schemes can operate for decades but usually collapse when income from new investments can no longer meet the demand for dividend payments or withdrawal requests from existing investors,” Cook explains.
Under that name, Ponzi schemes have existed for over a hundred years and probably far longer.
The Wall Street Journal called Bernard Madoff’s Ponzi scheme, which operated for at least 17 years without law enforcement intervention, “ the largest fraud in history.”
As of 2008, it had resulted in an estimated $68 billion (USD) in paper losses to investors.
The UK has a robust regulatory framework for financial services, making large-scale Ponzi schemes difficult to operate and avoid detection.
The Financial Conduct Authority (FCA) authorises and regulates financial services firms, including those that offer Collective Investment Schemes (CIS) that operate legitimately.
The FCA has a stringent, risk-based approval process that focuses on areas that pose the most potential hazards to investors.
The FCA supervises authorised firms that offer CIS and other investment vehicles on an ongoing basis.
Neither Citygate nor Social Housing Group were authorised by the FCA to provide financial services.
Despite appearing to operate as fractional collective investment schemes, it’s still a grey area whether Citygate or Social Housing Group was operating an unauthorised CIS — a matter that may end up before the courts.
Financial Conduct Authority v Forster
A recent case, FCA v Forster & Ors, found that a firm marketing a “buy-to-let” investment model involving leasehold interests in care homes to private investors under the brand name Qualia was, in fact, operating an unauthorised CIS.
In a press release, the FCA said, “The High Court has ruled in favour of the FCA against Robin Forster, the director of a company which took £57 million from 380 investors in an illegal care home investment scheme”.
The FCA has asked the Court “to determine the sums that the defendants should be required to pay back to investors.”
Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, said, “The Qualia scheme offered unrealistic returns based on its unsustainable business model and operated like a Ponzi scheme. Mr Forster’s reckless behaviour put investors at serious risk, and we will now seek compensation for them.”
The defendant argued unsuccessfully that the scheme was a buy-to-let investment, not a CIS.
“This, and cases like it that we have pursued, are particularly significant,” notes Cook. “They establish an important precedent that even schemes marketed as simple property investments can be deemed collective investment schemes if they function that way in practice, bringing them under FCA regulation.”
Buy-to-let and rent-to-rent investments are not subject to FCA authorisation or supervision.
However, FCA v Forster sets a precedent that if a property investment scheme operates as a CIS as defined under the Financial Services Management Act 2000 (FSMA), it will be deemed one by the court.
Under Section 19 of FSMA, directors of firms offering unauthorised CIS schemes face criminal prosecution, personal liability, and civil penalties.
Not all fractional buy-to-let or rent-to-rent investments are illegitimate.
However, any investment scheme that “guarantees” high-yield returns should be approached with extreme caution.
Citygate Housing reportedly offered private investors guaranteed annual returns of 20%.
“Educated investors know that if it sounds too good to be true, it probably is,” Cook points out.
How Do Legitimate Rent-to-Rent Investments Work?
Legitimate rent-to-rent services in the UK are most frequently used by landlords seeking guaranteed income during a vacancy and a more hands-off approach to property management.
Rent-to-rent firms generate income by charging a higher rent to tenants than what they pay the landlord.
“A well-run rent-to-rent company can offer significant benefits to both the property owner and the operator,” Cook explains. “The landlord gets a predictable income with less work, and the rent-to-rent firm makes a profit if income from tenancies exceeds operating costs.”
“Another benefit to operators is the ability to quickly build an extensive property portfolio at a much lower cost than buying real estate,” he continues.
Rent-to-rent schemes that operate under this model do not require FCA authorisation — whether the property owner is an individual, company, local council, or HM government.
Local councils, housing associations, and companies like Serco sometimes use rent-to-rent schemes to address social housing shortages while outsourcing day-to-day property management.
Social housing rent-to-rent schemes can be appealing to landlords because many of the stringent regulations for private rentals to individuals do not apply to social housing.
“There are legitimate reasons why rent-to-rent arrangements exist and can be beneficial,” explains Alex Cook. “The problems arise when these models are used as vehicles for investment schemes without proper regulation or oversight.”
Unscrupulous individuals and companies may also be attracted to social housing R2R schemes for different reasons.
“It’s easy to frame investment in social housing as a humanitarian endeavour in marketing materials, but fraudulent schemes exploit vulnerable communities to lure more customers,” explains Cook.
“Property let to social housing providers, like local councils and housing associations, is covered under a commercial contract even though it is for residential use,” he continues. “This is a selling point for many landlords but also provides fertile ground for dishonest operators to concoct complex structures and contracts that are unintelligible yet credible to uneducated investors.”
If a company offers fractional investments in buy-to-let or rent-to-rent property to private investors — but is not FCA-authorised as a CIS — it’s a significant red flag, especially if it claims to manage multiple commercial properties, including social housing.
But there are others.
R2R Red Flags
The internet and social media provide scammers of all kinds with a cheap platform to market investment schemes to unsophisticated investors.
In the past, Ponzi schemers and other swindlers relied on personal relationships and reputation.
Bernie Madoff, for example, was a Wall Street legend who bilked even seasoned, successful investors out of billions of dollars by guaranteeing steady, high-yield returns.
The fraud was only uncovered when Madoff’s fund could no longer pay out investor withdrawals and dividends.
“Today, a swindler can start a thread on a personal finance Subreddit or by positioning themselves as an expert via posts in Facebook groups, and potentially lure countless individuals into a fraudulent investment scheme without ever meeting them face-to-face,” warns Cook.
Citygate and Social Housing Group representatives were highly active on numerous social media platforms and aggressively marketed their property investment schemes.
“The investigation and arrest of four directors don’t mean they’re guilty of anything, but it’s a legitimate cause for concern—especially for people who’ve potentially lost their investments,” Cook highlights.
He lists the following red flags that apply to many types of investments, not just rent-to-rent schemes.
- Unrealistic returns
- Guaranteed returns
- Promises of passive income
- Unregistered or unauthorised by the FCA. Check the FCA register — don’t rely on claims by the firm
- Overly aggressive sales tactics
- Overreliance on influencers or charismatic founders/promoters
- Delayed withdrawals or dividends
Alex Cook, Property Litigation Solicitor at Helix Law, commented:
“No matter how appealing an investment scheme might appear based on testimonials, marketing materials, or endorsements, there is often little substance for proper due diligence. In my experience, the more a property investment is presented as a ‘sure thing,’ the less likely it is to be legitimate.
“Investors should always approach opportunities promising guaranteed high returns with considerable skepticism. If you believe you’ve fallen victim to fraud or encounter a suspicious investment scheme, seek legal advice from a specialist litigation solicitor and consider reporting it immediately to the Financial Conduct Authority or Action Fraud.
“For property owners or company directors who have suffered losses due to professional negligence or dishonest actions, obtaining legal advice promptly is essential. At Helix Law, we work nationally, understand the complexities of property investment disputes, and aim to respond to all inquiries within an hour.”
ENDS
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About Helix Law
Helix Law is a specialist litigation firm of solicitors based in the South of England, acting nationally. They specialise in complex commercial, property and construction litigation and dispute resolution. They’re known for litigating against City firms and have grown to become one of the largest specialist litigation teams in the South East. They handle cases ranging from shareholder disputes to property litigation and construction adjudications.
Sources
- City of London Police Economic Crime Department: Operation Lily investigation
- Inside Housing: Reporting on “investment opportunities within the social housing sector”
- Trustpilot, Reddit, and Facebook: Platforms with posts by claimed Citygate Housing investors
- Wall Street Journal: Bernard Madoff Ponzi scheme reporting
- Financial Conduct Authority (FCA): UK financial services regulatory body
- FCA Register: Tool for checking if firms are authorised by the FCA
- FCA press release: “The High Court has ruled in favour of the FCA against Robin Forster”
- Financial Services Management Act 2000 (FSMA), Section 19: Legislation regarding unauthorised CIS schemes
- Serco: Company that sometimes uses rent-to-rent schemes
- Action Fraud: UK’s national reporting centre for fraud and cybercrime
- Helix Law: Specialist litigation firm of solicitors
