The right Property Developer loan notes will enhance your ROI
Interest on the loan makes developer loan notes attractive as investment vehicles.
We list six major benefits of investing in property developer loan notes and suggest some of the best options available.
When investing in these loan notes, investors are rewarded for providing finance to developers to begin or complete projects.
Developer loan notes can be ideal for investors who have a shorter timeframe and also desire the flexibility for early access to their capital. A loan note portfolio can be constructed to help you benefit from different income payment dates and maturities.
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These loan notes can offer you an excellent ROI. Because you are lending the loanee the capital to get a development up and running or through the subsequent stages of the development, you benefit from higher income levels because without your investment, the developer may not be able to progress with the project, Your investment enables the developer to hit targets and profits faster – this is worth a premium on your return.
As such, the interest you should expect should be at least 8% to 15% in year 1.
Look out for this feature. The best loan notes come with flexibility built-in . If you anticipate you may need your capital returned sooner than the agreed maturity date, look out for a loan note that will allow you to withdraw earlier. You may need to give notice to withdraw your investment,or lose some premiums – check all these terms and conditions – and check again.
You can also invest in loan notes that pay interest monthly, quarterly, half-yearly or annually. This flexability allows you to structure your income in a planned manner.
Another important feature to look for. You should benefit from identified and named collateral as security because these types of loan notes are directly linked to a particular development.
With your investment tied to a real asset, you have tangible security backing your investment and as the development matures, this collateral increases in value. This is obviously attractive.
Often Perfect for shorter-term investors
Typically the developer does not want to continue paying premium rates of interest for longer than is strictly neccesary, as doing so obviously affects its forecast profits on the development.
So – the developer will issue loan notes for the capital as and when it needs, and for as short a time as is possible or practical. The sooner it completes the planned development, the less it will pay in interest and the greater its profits will be.
You can find terms from as little as 12 months to five years or more. This can be ideal for those investors who do not want longer-term investment, or who have plans at a certain date in the future. You should note that some loan notes come with the provision that the developer could repay the loan early– meaning you get the returns sooner than you may have anticipated. Look out for all these factors if you are a looking for a short term investment.
Diversity can be a huge strengh to a balanced portfolio and investing in loan notes helps you diversify. You should realise that diversification isn’t just about creating your wealth – it is also about preserving your wealth. In short, it’s risk reduction.
This is where alternative investments like loan notes come into their own…
Passive income – little management needed
Any landlord will certainly tell you that it is easier to manage several loan notes than several properties! There is no dealing with tenants, and no unexpected maintenance bills to pay. Tax liability is also easily calculated. Once you have made your investment, there is little management to do – other than check that your income is flowing when it should.
That is, of course, provided you have done your due diligence and research first and invested in loan notes as recommended by experienced and financially secure developers and as vetted by this guide. These loan notes could be a very lucrative passive investment.