High Yield Fixed Term Property Investments

The types of property investments considered here range from fixed interest loan notes to fixed term Buy to Rent investments, with investment usually in the range £25k to£75k. Loan notes are often used by property developers to partly fund their new property developments while fixed term Buy to Rent opportunities are where the investor takes temporary ownership of a specific portion of a managed property, such as a Room in a Care Home, a Room in an Hotel or a Space in a Student Let Facility. These types of investments allow relatively smaller sums to be invested without the investor needing to have any hands on management involvement in the facilities.

• Loan Notes – In the case of fixed interest high yield Loan Notes, capital is usually invested for a fixed term of between 2 to 7 years to provide fixed annual income with capital returned at the end of the term.
• Buy to rent investments – Generally with these types of investments, the investor has title to a set portion of the operating facility, as described above, and will receive income from the profits generated by that portion of the facility. Generally, the contract will provide for Buy Back arrangements at set intervals, where the investor can sell the investment back to the provider at current valuation which would hopefully be higher than the original value.

High yielding Loan Notes from Property Developers

Many investors will have experience of Savings Bonds that are offered by high street banks where a lump sum is invested for an agreed term, usually 1 to 5 years, in return for a slightly higher rate of interest and at the end of the term, the original capital is returned together with the accumulated interest. Generally, the capital cannot be withdrawn during the term of the bond. Although the interest rates are still quite low, your capital is usually safe as provided it is under the allowable threshold, the government provides guarantees that should the bank fail, your capital would not be lost.

Loan notes operate in a fairly similar way but because they do not enjoy the government protection guarantees, that are available with bank bonds, your investment would be at risk should the company issuing the loan note find itself in financial difficulty. Should the company issuing the loan note fail, or be unable to pay back the initial capital, in part or in whole, there would be no recourse to the financial ombudsman service for compensation and your money may be lost. In essence, you are taking risk by lending your money to a commercial company, for an agreed period of time, to achieve high returns on your capital.

• Interest rates of between 5% to 12% are common and often, further bonuses can apply.
• Interest is paid annually or at earlier intervals depending on the conditions of the Loan Note.
• Investors can often withdraw from the loan agreement at annual intervals.
• Terms are usually between 2 and 7 years.

High yielding Buy to Rent investments

These types of investments will come in a variety of forms of contract with capital being invested in a wide range of business types, examples of which have already been given. These Buy to Rent investments are different from the traditional route to property investment, which is strongly focussed on the Buy to Let market where an investor would purchase a property for renting to individuals and families to live in. With these Buy to Rent investments, you are really taking ownership of a portion of an operating companies premises and giving the use of your holding in those premises back to the company in return for sharing in any income the company produces from your holding.

Contract conditions will vary but generally you would be given a series of dates where you can sell your holding back to the operating company and withdraw from your investment. Yields offered tend to be in the range 8% to 10% per annum but in practice will be reflective of how the business has been operating. Unlike traditional BTL investment, where the investor manages their own property and is mainly concerned with rental yield and gains in the property value, with this type of Buy to Rent investment, the investor has no say in the way the operating company manages its affairs and places his or her trust in the operating company doing well.

As you are investing in a commercial enterprise, there are no government protection guarantees available and these types of investment are not regulated by the Financial Conduct Authority. Should the company fail or be unable to buy back your holding, in part or in whole, there would be no recourse to the financial ombudsman service for compensation and your investment may be lost.

Potential returns offered by Fixed Term Property Investments

The returns from this type of property investment are wide and varied as at one end of the scale, investors are simply lending their money in return for interest payments while at the other end, investors are taking temporary ownership of the investment property with a view to receiving income from profits, together with capital growth through the rise in property values and through the performance of the holding business.
Investors will of course need to look carefully at the terms offered for their chosen investment but generally, yields will be in the range 5% to 12% and possibly higher.

Comparison with Traditional Property Investment Methods

The usual methods of investing in property will require the investor to take complete ownership of a fairly valuable property and be responsible for its development and management until it is eventually sold. The main risks are in the investors ability to find the right property, arrange any required financing, be able to attract good tenants, manage the maintenance of the property, handle any disputes and any legal complications and hope that property values will increase over time. All of this requires hands on activity and with typical residential property values in the UK being in the range £150,000 to £350,000, investors will need to be able to invest large sums over a long period of time. See the comparison Chart Below:

Investor suitability for these types of Property investments

Although these types of investments can produce high returns and will free up the investors time through there being no requirement for their active participation in the activity the investment is being used for, they do carry risk. This risk means that investors need to fully understand that should the investment issuing company become insolvent, or if it under performs in its chosen market area, the capital that was invested may not be fully returned or even lost. For these reasons, investors who have limited experience with this type of investment should seek advice from professional financial and legal advisers, to ensure that the specific terms and conditions associated with the investment and the possible outcomes for the investment, good and bad, are fully understood prior to making an application.