Property Bonds: The Smart Alternative to Buy-to-Let

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Property Bonds: The Smart Alternative to Buy-to-Let

When it comes to investing in property there are several strategies available. Different types of investments offer their own advantages and disadvantages, with varying risk levels. In other words, there is more than one way of investing in property and huge sums of capital are not always required.

Buy-to-let and off-plan investments are common and well known in the investment industry, but property bonds are becoming increasingly popular. So, what exactly is a property bond investment and what makes it enticing?

Why Investors Are Opting for Property Bonds

A property bond is the process of investing in the development of a property as opposed to a completed property. This type of investment is seen as an ideal opportunity for both developers and investors. Developers can use the capital they raise to partially fund the project, while investors receive returns as work progresses. In simple terms, a property bond can be seen as a loan that contributes to the costs of developing a property.

Investing in property requires strategic understanding and experience to be able to make calculated decisions. Any type of investment comes with a series of potential risks. Property bonds are often seen as one of the safest forms of investing for several reasons. They are usually secured against a physical asset with a current value. If the bond issuer went out of business or failed to meet the financial agreements of the loan, the investor could legally claim the value.

Rising Popularity of Property Bonds in the UK

The past few years have been riddled with uncertainty in the UK which has resulted in declining interest in property assets. However, this has got a lot to do with consistently rising property prices and complicated landlord taxes which have ripped the value out of the buy-to-let market. That said, UK property remains one of the most popular investment classes in the world.

Property bonds allow people to take advantage of lucrative investment opportunities at an affordable entry level. What’s more is that investors are not subject to the costs commonly associated with buy-to-let. This means there is more net value in property bonds, with the additional bonus of them being super liquid, allowing you to exit rapidly if your circumstances change.

Property bonds also provide you with a healthy capital income with reduced risk. Because property bonds pay interest at a fixed annual rate through regular payments or net capital gain at the end of the investment, you can calculate your ROI exactly. An early exit clause may also be included which means that you can receive your initial investment earlier than expected.

The Benefit of Flexibility

Although property is an evergreen investment vehicle, when you buy whole properties, it is a long-term commitment. Managing a rental property also comes with its own headaches which can take chunks of your capital to fix. Property bonds allow you to dip your toes in the water at a level that’s acceptable to your financial circumstances.

One of the biggest benefits of investing in a property bond is that you are investing in a development. This means that you don’t have to deal with the hassle of managing a property portfolio. You don’t have to concern yourself with day to day financial issues such as maintenance fees, insurance and tax. You can simply invest the money and receive your income returns knowing that you don’t have to worry about the complexities of building, selling and letting a property.

You can also use property bonds as building blocks to creating a really valuable portfolio. Spreading the type of bonds you buy across different types of property is a great way of diversifying. For example, you can invest in a commercial mixed-use development or residential properties in the private rented sector (PRS) with bond instruments, without laying out loads of cash.

If you would like to find out more about how to build wealth with property bonds, contact an adviser at Diversified Property and we will be happy to help you.