Property Bonds
How it works
Property Bonds
Bonds are used by companies as a way of raising capital to invest in projects. For property companies, this is a method for increasing available funds to invest in development finance.
For the investor, Property Bonds are an alternative way of investing in property without buying the asset directly.
As an investor, you will put your money into a bond and receive a fixed return on your investment. This is known as a coupon, which is usually paid out two times a year. Though some bonds offer quarterly or annual income.
For an investor, bonds offer several advantages. The main one is knowing what you get back from your investment. If you hold a bond until maturity, you will get your principal back. This in effect helps reduce investment risk, as you don’t have to worry too much about the volatility of the property market.
As a bondholder, you also have a legal charge over the Company, and it is legally obligated to pay you back. If they don’t the security agent will seize control of the company and liquidate the company’s investments to pay you back.
Additionally, bonds have a lower entry-level and don’t require worrying about mortgages or stamp duty to get involved. This makes it more of a passive investment, which is beneficial to certain groups of investors.
On the downside, bonds are an income bearing product which means that most bonds will not show you capital growth, so the value of your investment will erode over the longer term due to the effects of inflation.
It is important to realise that bonds, like all investments, incur market risk. If a company becomes insolvent, there is a chance that you may not get paid back. This is why you should only invest in bond offerings from established companies.