Looking for a great, reliable, and profitable business idea that you can do on the side while doing something you enjoy, investing in UK property investment loan notes might be a great fit.
So, What is a UK Property Investment Loan Note?
It is a way of lending money to another investor who will use that money to purchase investment properties. Then you, as the lender (investor), will earn interest on the funds you have lent. It is a wonderful way to boost the returns on property investments.
As you purchase these notes, you are able to buy some income-generating assets with cash funds, adding property income to your portfolio; all this comes without the hassle of 1land acquisition and managing a property from as low as £5 000 cash input.
A loan note is a short-term investment with a quick exit strategy – e.g., two years – and takes effect when the loan note amount is fully paid.
How do Property Investment Loan Notes Work?
Property investment loan notes are an asset type that potentially offers the income from property investing to a broader range of investors. It is created when an investor pays a lender a sum of money and, in return, gets a promissory note stating they will receive the repayments and interest from the lending at a predetermined date.
Property Investment Loan Notes: Application Process
First, you need to confirm with your property expert that you meet the eligibility requirements. Second, Carry out due diligence on the company and read the information memorandum before committing yourself.
Third, decide on the amount to invest and Complete the Anti Money Laundering (AML) documentation. Finally, pay the loan note in full and receive the loan note certificate in your name.
Benefits of Property Investment Loan Notes
While being another way to gain passive income, Land investment notes have plenty of benefits to the investor, including tax deductions and potential capital growth.
As developers capitalize on property loan note investments to raise capital, investors enjoy one of the highest fixed interest rates in the UK. In addition, many investors are thrilled by the predetermined maturity date on the promissory notes.
As developers capitalize on property loan note investments to raise capital, investors enjoy one of the highest fixed interest rates in the UK. In addition, many investors are thrilled by the predetermined maturity date on the promissory note.
Property development is capital intensive, and a developer may not meet the bank’s stringent requirements. On the other hand, Loan notes provide a more flexible option to raise money.
Most importantly, you have the opportunity to invest in the UK property market without the hassle of purchasing and managing a property, otherwise out of reach.
Regulation and Taxation of land loan notes
Land loan notes as investment instruments are not regulated in the Uk but considered as a monetary promotion.
According to section 21 of the Finance Services and Market Act of 2000 (FSMA), Property loan notes are a monetary promotion. This implies loan notes are approved for individual property investors.
Financial Conduct Authority (FCA) authorized and regulated some financial promotion companies and should have section 21sign-off.
Under British Tax Law, investment loan notes can be classified as qualifying corporate bonds (QCB) or Non-qualifying corporate bonds (non-QCB). While QCB enjoys Capital Gains Tax exemption, non-QCB incurs it.
Who can Invest in Land Investment Notes?
Property loan note investment is designed for investors meeting the following criteria;
- Individual Property Investors with knowledge and experience to make a financial decision on the product
- Self-certified sophisticated investors
- Self-certified High Net Worth Individuals – Include investors earning at least £100,000 annually or have assets worth over £250,000
However, the average individual retail investors cannot invest in the UK property investment loan notes.
If you need further clarification, speak with one of our executives to guide you through the eligibility requirements and land acquisition in the UK. We also have tips and ideas for investing in the UK property Market to save you from the pitfalls of inexperienced investors.
What are the Dangers of Investing in Property Loan Notes?
While loan notes are valuable for developers to raise capital and investors to earn passive income, it is not without risks.
- They are not regulated
Although the allure of high returns tempts investors, investing in other people’s ideas comes with risks. For example, investment loan notes are unregulated; therefore, should the property developer become bankrupt, you could lose your entire capital. However, a great plan to counteract and minimize such risks entails choosing assets-backed investments.
- Shifting market
Property investment success is subject to market stability, and if the market tumbles, your capital is at risk. Due diligence on the developer’s credibility would help you avert the threat.
Some developers offer early exit clauses, and if you act early enough, you will avoid unnecessary losses.
- Late payment
Even though the developer promised to repay at a specific date, some projects could run beyond the completion schedule; thus, you could be paid late. But, again, doing due diligence on the developer’s credibility and performance track record might save you the headache.
Property Investment Loan Notes: Unsecured vs Guaranteed
A land investment loan notes are either unsecured or guaranteed, with the latter being the safest.
Unsecured debts are not guaranteed against the company’s assets. As a result, it has higher interest but, on the flip side, poses an equally higher risk to the investor.
On the other side, guaranteed loans are backed by the company’s assets, and a trustee is appointed to protect the interest of the investors.
However, secured loans have minimum risks, but the secured assets are sold to pay off debts if the company defaults.
Property investment notes have transformed the way entrepreneurs can make money from property investing. Instead of buying and managing a property, you can avoid the hassle by purchasing a property investment loan note while adding property income to your portfolio.
The ideal way to ensure your money is safe is to do a proper background check on the developer, investing in asset-backed loan notes, and having a trusted development partner like Berkshire Corporate.
The key to making property investment notes work effectively for you is finding good deals and expert advice. You can start by downloading our guide to investing in the UK property market 2021.
If you would like to invest in UK property Investment Loan Notes with Berkshire contact us here.
To view our completed projects click here and if you would to get more information you can contact one of our executives here.