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PROPERTY BONDS – AN INCREASINGLY POPULAR ALTERNATIVE INVESTMENT

29/09/2019

Reece Mennie is the CEO of Hunter Jones, the UK’s fastest growing investment introducing firm.

 

Why the excitement about property bonds?

Buy-to-let has long been seen as a lucrative investment, but the market is no longer as viable as it once was despite mortgage rates being at rock bottom levels. Stalling house prices coupled with a tax crackdown, and extra stamp duty levied on landlords, is having a crippling effect on the whole market. But for many, bricks and mortar investment still appeals.

Consequently, more people are turning to property bonds as a convenient means to secure attractive returns on their hard-earned capital. Property bonds enable savvy investors to invest in the development of a property, without the hassle of owning it. Essentially, it is a loan to a property development company to partially fund a construction project.

Investors will be reassured that property bonds are a legally binding agreement to pay them a fixed rate of interest over a fixed period of time, as well as the return of their original investment. In short, they offer the best of both worlds: attractive fixed returns with the peace of mind that comes from the security of ‘bricks and mortar’.

 

Reece Mennie

Are property bonds for me?

One of the biggest benefits of investing in a property bond is that you do not have to deal with the hassle of managing a property portfolio. Neither do you have to concern yourself with day-to-day financial issues such as maintenance fees, insurance and tax. You can simply invest your money and receive your income returns, without worrying about the complexities of buying, selling and letting a property.

Unlike stocks and shares, property bonds offer investors a bit more piece of mind in that they are a more stable investment. They come with asset-backed security and are far less susceptible to the day-to-day fluctuations that can make the stock market so risky. Interest is paid as ‘income’ periodically or is compounded over the term of the loan and added to the maturity proceeds as ‘growth’.

It must be noted that, much like many other investments, once you have placed your money into a loan note, it cannot be redeemed before the agreed term. Also it is important that you invest your money with a reputable introducer, i.e. one that operates to FCA standards and requirements, as the industry itself is unregulated.

Whilst property bonds offer very attractive benefits, not all property developers – and therefore not all bonds – are the same. Finding the right investment opportunities requires expert knowledge, and can, therefore, be both difficult and time-consuming for those with little free time or expertise. This is where financial introducers are often of assistance. By evaluating, and conducting due diligence on, developer offered property bond opportunities, a range of high potential investments can be showcased to investors, with little effort on their part.

 

Investor eligibility is vital!

It is important to note that property bonds are not suitable for everyone. For example, Hunter Jones only markets to self-certified ‘High Net Worth Individuals’ and ‘Sophisticated Investors’.

  • High Net Worth Individual

Defined in regulations made pursuant to the UK Financial Services and Markets Act 2000. Essentially, it is someone with a net income that exceeds £100,000 and/or has net assets that exceed £250,000. This does not include any pension fund assets they may have or their private residence.

  • Sophisticated Investor

If an investor can satisfy one of the following criteria they can ‘self-certify’: they have been a member of a business angel organisation or had more than one investment in an unlisted company; they have worked in the private equity sector; they have been a director of a company with a turnover of £1 million or more.

 

So what next?

For eligible investors, property bonds are a great means to generate a passive income, given that they are secured against physical property assets and offer a regular high yield. That being said, you must always speak to a professional financial adviser before making a decision to invest in anything.

I always recommend one that is approved by the Financial Conduct Authority (FCA). If you have found an adviser you are thinking about using, check the FCA register to ensure your advisor is regulated and approved.

Remember, property bonds can generate some of the most impressive returns currently available, and at relatively low risk. However, it’s extremely important that investors take the time to source and research viable opportunities, which is where experienced, specialist Introducers can help.

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