Investing for Income with Property Bonds

Gareth Watkins - Investment Marketing Manager

Most investors are used to deposit accounts, shares, properties including either their own homes, property investments or buy-to-let investments and the various different funds which are recommended by stockbrokers and banks. There are however a new generation of armchair day traders empowered by trading apps that allow investment in shares, currencies, gold and even bitcoin. Since the banking crisis of 2008 global interest rates have fallen and set to remain low for the foreseeable future. This has driven many investors to look for an alternative source of income.

Fixed Income Bonds can play a vital part in diversifying any investment portfolio, provided that they are issued by the right company and sufficient due diligence is completed or advice sought from a Financial advisor, as they can help diversify your portfolio.

In recent times have seen an outflow of investment in shares and into bonds as some investors consider the price of stocks to be ‘detached from reality’, with many previously rock-solid shares cancelling dividends and decreasing in value.

Property bonds are unlisted corporate bonds that are issued by a company to raise capital for initiatives like expansion or research and development and provide fixed income and a fixed return. However, when investing in unlisted corporate bonds, one needs to look carefully at the pedigree and history of the issuer as higher yields often compensate for higher levels of risk. Therefore, investors have to think carefully about risk tolerance and avoid investing solely based on yield.

With enough starting capital, some bond yields can be enough to generate a sizable monthly income. Buying £600,000 of bonds with a 5% yield would give you an annual income of £30,000, the UK’s median income, and there are bonds yielding even higher rates. However, bond investors run the risk of losing their capital if they invest in the wrong company and it is possible to lose 100% of your initial investment. As a result, property bonds are usually only available to qualifying investors, such as High Net Worth, Sophisticated and Self Certified Sophisticated investors, and given the level of risk are quite rightly not available to the general public. Therefore anyone investing in property bonds needs to ensure they seek independent financial advice and their investment is only part of a wider investment portfolio.