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Loan Notes

Creating Financial Wealth for clients through Investments, Pensions and Property

STRATEGIES DURING HIGH INFLATION

Loan notes are just one way to invest cash to get decent returns or 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?

What are Property Notes?

A 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 (similar to a bond). 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 12 to 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 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. What is important is to deal with a developer with an excellent long-term record. 

Why Loan Notes?

For many investors, property loan notes represent a more secure, time-efficient way to invest in the property market or to put your cash to work at inflation beating returns. 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 The commitment is the same as, let’s say, a fixed deposit account where funds can’t be withdrawn for a year.

They can also be incorporated into an existing 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 Loan Notes?

There are different ways to access loan notes as an investment vehicle, but the best way is to get in touch with a professional 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 loan notes as part of your investment portfolio.

(Any information herein is only expressions and opinions. This document does not constitute an offer, an invitation to offer, or a recommendation to enter into any transaction, nor does it constitute investment advice. The information contained herein is confidential and reproduction of any part of this material is prohibited. If you are in any doubt as to the suitability of an investment you should always consult your financial adviser. Leaton Wealth does not receive any form of compensation for circulation of such material.)