With lower costs and higher returns, this property investment alternative is an excellent opportunity
Free from many of the challenges that can arise from investing in a physical property asset, Loan Notes offer investors access to the wide-ranging benefits of investing in the UK property market – but with a more clearly structured investment package.
From increased affordability to secured trustees, here are just 5 reasons to invest in Loan Notes:
Loan Notes allow investors to benefit from the strength of the UK’s property market – but investing with smaller amounts.
Traditional property investments can require a larger commitment of funds in order to secure the asset, both with or without a mortgage. Depending on the region and city, the costs of investing in physical property can vary dramatically.
In the longstanding buy-to-let stronghold of London, investment purchases fell significantly in 2018, with a 5.8% decrease in sales. For the first time, the capital is no longer the English region with the most sales for buy-to-let property.
Despite the average asking price for a property in London falling below £600,000 for the first time in three years, property values in the city have still increased at a far higher rate than anywhere else in England over the last few decades – simply pricing out many investors.
Instead, investors seeking more affordable prices and higher returns are having to look at new areas.
Predominantly priced at a level far below the cost of an average buy-to-let investment, Loan Notes allow for investment into the UK property market using far smaller increments.
As the UK property market sees a shift in the geographical power balance, property investors are becoming increasingly open to exploring new markets – and products – in search of higher returns.
While traditional buy-to-let investment affords investors the chance to seek out greater returns by capitalising on below market value assets, favourable lending rates, and continuing undersupply, the rate of return remains uncertain.
Just as fluctuations in the market can see rental returns and property values rise, they are just as susceptible to declines.
By comparison, Loan Note Investments offer a fixed rate of return, agreed via contract prior to the investment being made.
Contractually assured and free from additional property cost contributions such as service charge or ground rent payments, Loan Note investors know exactly how much their returns are likely to be and when they should receive them.
While many investors enjoy the security of retaining a physical property asset, there are a number of additional costs and factors that must be considered in order to retain and maintain that investment.
As an owner, you may need to play an active role in the operation and maintenance of that asset, or alternatively, you may need to use, and incur the costs of a professional management company to handle those aspects for you.
Free from the usual considerations associated with a bricks and mortar property investment, Loan Notes do not require investors to become involved with the day-to-day running of their investment, as the money loaned is utilised and managed entirely by the issuer.
As you are not investing into a physical asset, there are none of the usual fees or costs to cover.
No Conveyancing Costs. No Stamp Duty. No Void Periods.
With a Loan Note Investment, you simply receive your contractually agreed returns.
Unlike many traditional property investments, Loan Notes are also able to provide a clear and predetermined exit strategy for investors.
As they are not dependent on the ongoing sale of a property, the execution of a developer call option, or even the construction of an asset, investors enter a Loan Note Investment with a certainty of when the investment term will end – and more importantly, at which points they can exercise their right to exit the investment.
Most Loan Note investments tend to be short-term and for a fixed period of time, lasting anywhere from 1 to 3 years. However, for longer Loan Notes, the investor may have the option to sell their Loan Note on the anniversary of their investment each year.
This gives the investor the flexibility to exit the investment ahead of the maturity date if they wish, typically as long as they provide a minimum of 30 days' notice prior to the anniversary of the purchase.
One of the reassurances that often leads investors to consider a property investment is the ownership of a physical and leverageable asset as a part of the investment.
It assures investors that, regardless of the performance of the property as a rental option or as a capital appreciation tool, they will have property that they are able to sell on to a new owner should they wish to exit that investment.
While the Loan Note model does not offer investors a physical property asset as a part of the investment, there is a significant measure put in place to maximise the protection available for your investment.
Unlike a standard buy-to-let investment where there is a two-party agreement between the vendor and the purchaser, Loan Notes generally introduce a third party – a Secured Trustee.
The role of the Secured Trustee is to stand independent from the vendor, holding debenture over the vendor’s assets, so that should there ever be a need for funds to be recouped from the vendor, there is a separate party who can protect the interests of those investors needing to be paid.
They have debenture of the Loan Note issuer's entire assets and crucially, not just one specific company behind an individual property development.
Loan Note Investments are only suitable for experienced and qualified investors who meet the specific criteria to be either a High Net Worth Individual or a Sophisticated Investor as set out by the FCA.
To find out more, please visit our Loan Note investments page and self-certify here.