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Your Guide to Investing in Property Bonds

09.10.20

Gareth Watkins - Investment Marketing Manager

When it comes to investing in property, the traditional method is to Buy-to-Let or to renovate and sell an existing property for profit. But with Stamp Duty Land Tax rises, increased planning regulations and the day-to-day difficulties of being a landlord, this is proving less and less attractive. This is why property bonds appeal to many investors.

But what is a property bond? A property bond is a loan to a housebuilder. These companies use their own funds and borrow money from banks for their developments, and any shortfall is normally raised through private equity or by bonds. These bonds raise capital for the developer and pay a return to the investor. Terms vary, but payments can be monthly, quarterly or yearly and for a fixed term such as one, three or five years. Once invested the money is locked into the fixed term and cannot be withdrawn, but the rate of return reflects this.

What makes property bonds attractive for many investors is that the rates of return are often better than those in deposit accounts and other savings accounts, which is very attractive when interest rates are historically low. It’s also a way for investors to enter the property market for a fraction of the sum they’d need to become a landlord and requires no ongoing management or commitment or time.

It is vital when purchasing bonds to do your homework and make sure the housebuilder has the experience and financial standing to repay the bond. If you choose the right company with the right sites, in the right regions, the risk should decrease- but there will always be risks.

Property bonds are not government backed or protected by the Financial Services Compensation Scheme, which is why they are only available to suitably qualified High Net Worth, Sophisticated or Self-Certified Sophisticated Investors. This means that investors should only invest after taking financial advice and if they can afford to do so, and should consider property bonds only as one small part of a diverse and balanced investment portfolio.

Acorn Property Group offers a wide range of asset-backed property bonds and has over 25 years of experience as a developer. Operating across the South West of the UK, they have a wide portfolio of rural and coastal homes and a substantial balance sheet.

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