London Property Bonds has launched a mini-bond promising to pay 8% for five years.
The money raised will be invested in the property market in Wimbledon and the surrounding areas. Investment opportunities will be identified by estate agents Robert Holmes & Co.
Investors’ capital, however, will not be put towards buying properties. Instead money raised will be used to make improvements to properties ahead of a sale. London Property Bonds will make its money from either the interest it charges through lending to sellers or by pocketing a pre-agreed percentage of the expected increase in value of the property.
It is worth bearing in mind, however, that the mini-bond cannot be traded, so therefore must be held until maturity. Another thing to point out is that mini-bonds are not covered by the Financial Services Compensation Scheme. Also, investors need to make a minimum payment of £1,000, with subsequent payments in multiples of £1,000.
But London Property Bonds says certain protections are in place, including a debenture over all of the assets held in the mini-bond. There will also be a charge held by London Property Bonds over any properties against which it lends.
There will also be an independent security trustee in place, which will act on behalf of bondholders.
Martin Helme, chief executive at London Property Bonds, says: “Many properties which arrive on the books of Robert Holmes & Co would enjoy a significantly higher market value for the sake of a relatively modest investment, but in the majority of cases the vendor has neither the money nor the desire to fund the necessary improvements. That is where the London Property Bond comes in.”
When weighing up whether to put money into a mini-bond, investors are essentially taking a view on whether the issuer will grow as hoped, in order to pay the interest payments. In a worst case scenario - the issuer failing - investors face the prospect of losing all of their capital.
The mini-bond promises to pay interest quarterly, and will be open until the end of July.
This news story was originally written for our sister publication, Money Observer.