Property loan notes are just one way to invest in the property market. But what are they, are they an alternative to buy to let investments, and are they a safe way to invest?

Property Loan Notes infogram What are Property Loan Notes?

A property loan note is a means for property developers to raise capital for their property developments. They can provide an alternative to traditional borrowing for developers and a way for investors to lend to those developers.

Think of property loan notes as an IOU issued by the developer. The investor loans a sum of money to the developer. There are likely to be multiple investors in a single development, in exchange for an agreement and undertaking to repay the capital with interest. There is an agreement put in place and the developer agrees to those terms to repay according to that agreement.

Typically a loan note matures after 24 months, with a payout including the initial capital and agreed interest. The agreement secures the loan note against the company as a charge, so there is a greater degree of security than some other types of investment. 

Are Property Loan Notes Safe?

Property loan notes are secured as a charge against the assets of the developer. And because they are classified as debt rather than equity, they are dealt with first in the event of insolvency. There is no guarantee that should a developer become insolvent that the capital will be repaid, but company assets would be sold off to pay debts off first. And that would include machinery, property, and the development that the loan note applies to as well which would most likely be of significant value to creditors.

Why Property Loan Notes?

For many investors, property loan notes represent a more secure, time-efficient way to invest in the property market. They don’t come with the hard work of managing a portfolio of buy to let properties, and the return on investment is known at the beginning of the agreement. At a time when interest rates are at a historic low the yield on property loan notes is far higher. The commitment is the same as, let’s say, a savings account where funds can’t be withdrawn for a year.

They can also be incorporated into an existing property portfolio or other investments as part of a strategy, or where there may be surplus capital in a business that could be tasked for investment. For example, if a business has a cash reserve and can invest the year 2 or year 3 money into an investment where access would be required after 24 months if the business needs to rely on its reserves.

How do you access Property Loan Notes?

There are different ways to access property loan notes as an investment vehicle, but the best way is to get in touch with a professional property investment consultant. You should take the time to understand what the risks are, the level of investment that you will need to commit, and what you could expect as a return on your investment.

Contact Us to look at your options and find out how you can utilise property loan notes as part of your property investment portfolio