Is investing in Property Bonds worth it?

Property bonds are a type of loan from investors to property developers to help fund the building or design process of a building development. The interest on this investment is then paid back to the investor, either monthly or at the end of the term depending on the agreement. Most investors already use the banks to fund the project, but they can’t always raise the full amount which is why they open schemes where private investors can help to fund the project. 

The appeal of property bonds from an investor’s point of view is the higher fixed annual interest rate, in an investment which should be quite secure. Property bonds are also appealing as it allows you to invest in property at a lower price than the traditional way of investing in properties, opening investment up to more people. 

However, there are some risks involved, as with any investment. Property bonds are usually fixed terms, with not many ways of getting your initial investment back if you change your mind without affecting the interest payments as it is locked in. They are neither regulated by the Financial Conduct Authority nor will be compensated by the Financial Services Compensation Scheme. This means that there is very little protection on your money from this kind of investment. One way to reduce the potential risk is by checking if developers are reputable with a professional advisor, as they will tell you how risky they think the investment is. You should look at the success rate of the developer or who is offering the bonds, as well as their experience. If they have completed many successful developments, paid off investors and been in operation reputably for many years, so it is likely they can be trusted. As with any investment, you need to weigh up the risk vs the reward and you need to be able to be in a position where losing the investment will not affect your economic stability. However, the risks involved in this form of investment are arguably a lot less than something like the stock market. 

This all sounds good but what return can you expect from property bonds? We cannot estimate exactly as it is solely down to the individual bond but they are a good investment as the return on investment is over a relatively short term such as 12 or 24 months where you could make double-digit, fixed returns. This is appealing for investors who are willing to lend larger sums of money as they can make a lot within one to two years, but is less tempting if you only have a small amount of capital to invest. 

So, overall, we believe that property bonds are a good investment due to their security, and potential high return on investment and it is a great way of varying your portfolio. We advise that you do not go in blind and you speak to professional advisors before investing in anything. 

Picture showing three piles of coins leading up to a wooden cutout of a house against a leafy, green backdrop. This is to represent Property Bonds as this is an article about investing in them by Harbour Property Group.
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