A Guide to Investing in Property Bonds

April 07, 2020

Business and investment meeting about property bonds around a table looking at graphs and pie charts

A Guide to Investing in Property Bonds

What property bonds are and how to make them work for you

Schemes to help individuals get a foot on the property ladder have been offered for decades, enforcing the idea that owning property is the most traditional and guaranteed way to accumulate profit.

However, finding the funding to get started on your property investment can sometimes be a problem. So even though the promise of high returns is within reach, it can be quite a task to get there.

The solution to this is property bonds.

The most traditional methods for investing in property such as property flipping, buy to let and property development all require a significant amount of capital, time and effort. However, there are other ways to be involved in the property market without going through hassle, saving your bank balance and peace of mind.

But property bonds let you invest in the property market with a much lower amount of capital. Here’s an example of how property bonds work:

  • A developer plans a new construction scheme. This could be either a commercial or residential property development.
  • Instead of seeking finance from banks or other lenders, the property developer issues bonds to raise the funds required to complete the development.
  • Land purchased to develop the scheme, and the development itself, are often offered as security for those investing in the bonds.
  • You can then become one of many investors purchasing the bonds. The investment you make is usually for a fixed term which is typically between 12 months and five years; here at Accumulate we mainly offer shorter terms.
  • The developer uses the money raised from the sales of bonds to proceed with the project.
  • Typically, you will get a return, either quarterly or yearly, on your investment. Depending on the property bond you choose, this is normally between five and 12 per cent. Accumulate Capital goes above this average and offers investors ROIs of between 12 and 15 per cent.
  • At the end of the fixed term, you can take out your investment along with the total return.

The developer of the property can generate the money to pay you a return on your investment in a number of ways. The most common are:

  • Refinancing the property
  • Using proceeds from the sale of the property
  • From rental income

Property bonds are also attractive to high-value investors too.

High-value investors can choose to become the developer or buy-to-let landlord, but this involves getting directly involved in the property. Many investors, however, prefer a more hands-off investment option. In other words, they see the potential for return in the UK property market, but don’t have the necessary time or experience.

So, those investors purchase bonds, effectively performing the function of a bank, i.e. giving developers access to funds.

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