There’s an age-old saying, “if it sounds too good to be true, it probably is,” that’s very relevant when it comes to investing. This allure of “instant returns” often gets people caught up in investment scams that promise the world but seldom deliver. The main culprit in this equation is risk and the fact that we fail to understand the risks associated with investments. Returns on their own don’t necessarily show you the whole picture, and fragmented information leads to uneducated decisions.
Suppose someone offers you 6%, is it a good return? A simple way to evaluate would be to review your risk-return ratio.
Example 1: Your upside is the promise of earning 6%, but on the downside, your investment can fluctuate down 4%.
Example 2: Your investment has the potential to earn 6% but, on the downside, you have the potential to lose 10%.
Now we’re starting to get a clearer picture as we’re exposed to more information
We founded SmartCrowd with the overarching goal to help people make sensible investments. Our team had collectively read about thousands of people getting scammed in some foreign exchange trading scheme or some off-plan investment scheme. There are many reasons for this, but two key factors are the absence of compelling options for retail investors and a lack of transparency from investment firms.
One of our core values is trust; we were compelled to provide investors protection on their investment. We wanted people to feel comfortable investing large sums of money on a digital platform and sleep easy, knowing that one-way tickets to the Caymans were not part of our exit strategy. This process wasn’t easy as regulators made us jump through numerous hoops since we primarily cater to retail investors. They feel this segment of the market has a limited understanding of finance; hence there should be extensive restrictions limiting their exposure, a “we must save them from themselves” mentality. Those limitations make it extremely challenging to create a commercially viable business, but we believe we’ve cracked the code and are confident in our business’s long-term value. Our approach has always been conservative, focused on quality rather than quantity.
Is my investment Fort Knox?
The beginning of our journey to becoming Mena’s first and only real estate investment platform (REIP) involved working relentlessly with regulators for almost two years to establish new policies to bring our business model to the real world. Our idea was unique from similar platforms globally as the legal structure provides direct ownership to investors hence providing them full protection on their investment.
Let break this down:
The SmartCrowd platform is financially regulated.
You might wonder why it needs to be regulated? Well, because we deal with people’s hard-earned money. Individuals send us money to invest in real estate assets; hence we first want to ensure the money comes from legitimate means hence the requirement for KYC documents. Second, we want to confirm that money is being invested in a structure that safeguards your investment. This doesn’t mean we guarantee returns; it just means we won’t be sipping on a beach with you footing the bill. We guarantee that proper structure is put in place to provide you full protection on the ownership and rights to your investment. This means that no one can run away with your money. No one can question your legal rights towards the investment. More importantly, your investment does not get impacted even if SmartCrowd is no longer operational.
Learn More About Our SPVs
How do we make this possible?
Each investment on our platform is structured separately. On average, we have anywhere between 50-100 people who invest in one residential asset. It’s nearly impossible to put all of those people on the title deed, and legally speaking, not a great idea. Imagine everyone is listed on the title deed, and God forbid one person passes away. Their estate would have the authority to freeze the entire asset until the matter is resolved, leaving all other investors in limbo. Or imagine an investor runs into some legal troubles for which he is personally liable for damages. In that situation, this property could also come into play, impacting all investors. This is the primary reason we establish a separate SPV (special purpose vehicle) for each property. An SPV is a separate legal entity registered in the DIFC, which essentially means it’s a company with many owners. Our investors are registered as shareholders in this SPV, and this SPV acquires that residential real asset that investors have invested in. No different than you buying stocks in Apple along with millions of others. Your shares give you the right to the company’s performance proportionate to your investment, and this not only limits your exposure from other investors, but it gives you full legal recourse on your investment. Given each asset has its legal structure, if Smart Crowd stops operating, the SPVs will continue to operate as a stand-alone entity, ensuring your investment has no exposure to Smart Crowd’s success. As a regulated entity, we are authorized to administer those SPVs on behalf of the investors. Your annual fees cover this work behind the scenes to maintain those legal structures that provide you investment protection.
Show Me The Money
You must be wondering what about the money I’ve sent you and the rental income generated from those investments. How are they protected?
All cash is held in a custodian account with Emirates NBD, meaning any capital related to the client’s investment is stored in an account with the prefix “Smart Crowd Client money account.” The bank is required to issue a letter to Smart Crowd and the regulators, indicating that the money held in this account belongs to the clients of SmartCrowd and not to SmartCrowd itself. This account is entirely segregated; if there is any legal action against Smart Crowd, this client money is not considered part of Smart Crowd money.
Furthermore, we need to provide regular reporting on this account to the regulators and conduct an annual audit by an independent financial auditor. The dividends distributed to users in their wallets are also held in this account and can be withdrawn at any point in time upon users’ requests. When an investment goes live on the platform, and we are collecting funds, you guessed it, also held in this account until the full funding is achieved, SPV set up, and the property is purchased. Only then the funds are released to the seller to acquire the property.
To finish off, each SPV record is a public record. Investors can go to the DIFC public register, input the SPV name, and see their name registered as a shareholder. The DIFC issues a NOC for each transaction to the Dubai Land Department that details each shareholder and their percentage ownership in the asset. This information is registered with the Dubai land department meaning all investments are recorded with two government authorities ensuring no dispute on your ownership. No other real estate investment product provides you with such transparency.
These legal structures and bank processes were the most significant hurdles we faced on the road to getting our license. We virtually had to start from scratch to ensure that our clients felt comfortable investing in the platform.
In the words of Sir Richard Branson,” the important thing is that you’ve got a strong foundation before you start to try to save the world or help people.”