A Guide to UK Property Bonds © 2022

Many people are interested in investing in Property Bonds. After all, the rewards can be substantial. The issue, however, is capital, or having access to funds to invest in real estate.

In other words, while you can make a lot of money investing in real estate, you need a lot of money to get started. However, there is a potential solution: investing in property bonds.

Property Investing Methods That Have Always Worked

The following are the most common traditional methods of investing in real estate:

Property flipping is the practice of purchasing a property and then reselling it for a higher price, frequently after renovation work.

Property Bonds

Investing in property to rent out to tenants as a buy-to-let landlord

Developing property entails purchasing land and constructing structures on it.

All of these types of investments necessitate the availability of funds. That means having enough money to buy the land or property outright or having access to financing to do so.

Property bonds allow you to invest in the real estate market with much less capital. Here’s an illustration of how property bonds work:

A new construction scheme is being planned by a developer. This could be a commercial or residential real estate development.

Rather than seeking funding from banks or other lenders, the property developer issues bonds to raise the funds needed to complete the development.

Property Bonds

The land purchased to develop the scheme, as well as the development itself, are frequently offered as security to those who invest in the bonds.

You can then become one of the many investors who buy the bonds. The investment is usually for a set period of time, usually between three and five years.

The developer proceeds with the project using the funds raised from bond sales.

Typically, you will receive a return on your investment either quarterly or yearly. This is usually between five and twelve percent, depending on the type of property bond you choose.

You can withdraw your investment as well as the total return at the end of the fixed term.

Property Bonds

The property developer can generate the funds to pay you a return on your investment in a variety of ways. The most common are as follows:

  • Property refinancing
  • Using the proceeds from the property’s sale
  • Rental earnings

Property bonds aren’t just for inexperienced investors.

As previously stated, property bonds have a much lower entry barrier, making them an investment option for those who do not have access to capital. Property bonds are also appealing to high-net-worth investors.

High-value investors can become developers or buy-to-let landlords, but this requires them to become directly involved in the property. Many investors, on the other hand, prefer a hands-off approach to investing. In other words, they recognise the potential for profit in the UK property market but lack the necessary time and experience.

Property Bonds

As a result, those investors buy bonds, effectively performing the function of a bank, i.e. providing developers with access to funds.

Of course, all investment opportunities have risks, and property bond investing is no exception. Even though the UK property market frequently provides a good return on investment, this is not always the case. This means you should always seek professional advice to ensure that this investment is a good fit for you.

If it is, property bonds allow you to invest in real estate if you don’t have a lot of money or if you want a hands-off investment opportunity. Inventing in real estate.

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds