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Why Property Bonds are an Attractive Alternative to Buy-To-Lets

For almost 20 years, buy-to-let was the investment of choice for many Brits. This coincided with the great British property boom, which saw buy-to-let investors earning average returns of £14,987 by 2016 for each £1,000 they invested in 1996. However, now the lure of traditional bricks and mortar investment is wearing off.

A crackdown started by George Osborne has seen successive governments throw barriers in the way of landlords to make it more difficult to enter the market and make attractive returns. This attack on property investors started in 2016, with the introduction of the 3 percent stamp duty surcharge on second homes. Then came the phased reduction of the tax relief landlords could claim on buy-to-let mortgage interest payments.

But the assault has not stopped there. Landlords are soon to be hit by changes to their capital gains tax relief, and from April 2020, they will lose their £40,000 lettings exemption unless they live at the property themselves. Given these strong headwinds, it’s perhaps not surprising that investors are turning away from buy-to-let in their droves.

Property remains an attractive investment proposition

Although buy-to-let has lost much of its lustre over the last few years, UK property continues to represent an attractive investment. Despite the political turmoil caused by Brexit, London continues to be a magnet for foreign investment, while the cities of Liverpool, Manchester, Newcastle and Leeds have all risen up the rankings to become property investment hotspots.
If only there was some way for investors to be able to tap into the lucrative UK property market
without having to face the government’s backlash against buy-to-let…

Why property bonds are an increasingly popular alternative

A property bond is an investment in the development of a property as opposed to a completed building. In simple terms, the property bond can be seen as a loan from an investor to a developer to help them meet the costs of the development. In return for this loan, investors receive a fixed annual rate of interest or a net capital gain at the end of the investment.

Any type of investment comes with a number of risks. For example, a buy-to-let investor may not be able to find a tenant for a prolonged period, interest rates could rise or the property market could crash. However, property bonds are generally seen as one of the safest forms of investment. That’s because they are usually secured against a physical asset with a value. If the developer were to go bust or fail to meet the terms of the loan agreement, the investor can legally reclaim the value of their investment from that asset.

Perhaps the greatest benefit of a property bond is that it allows you to invest in the property market without having to deal with the day-to-day hassle of managing a property portfolio. Rather than having to worry about maintenance issues, finding a suitable tenant and making insurance and tax payments, you simply invest your money and receive your returns.

Property bonds are three times more profitable than buy-to-let

New research by a London-based investment firm has revealed that individuals could receive almost three times the return by investing in property bonds rather than buy-to-let. It compared the purchase price, operating cost and return of a buy-to-let property with a property bond investment opportunity. To ensure a fair assessment, it looked at historical data associated with an average buy-to-let property in Yorkshire and a two-year property bond loan note with a Yorkshire-based developer, Empire Property Holdings.

It found that the buy-to-let property provided a return of 4.6 percent per annum, assuming a 100
percent occupancy rate. In contrast, the property bond delivered a return of 27.2 percent over two years at a rate of just over 13% per annum. The result is a clear difference of more than 8 percent a year.

Find Attractive Investment Options at Wealthmans

Property bonds enable investors to benefit from the profitability of the property sector without the downsides of property ownership. At Wealthmans, we are renowned for introducing well-researched, high-yield investment opportunities to clients in and out of the UK. These types of investments are only available to suitably qualified investors such as high net-worth individuals or sophisticated investors. If you are interested in finding-out more information on the investments we offer, please first register as a suitably qualified investor on our registration page to get access to the Investor Lounge.