In short, Bonds allow an investor to offer his money to a development company(as a loan of course) and in exchange, the investor will be repaid in full along with a fixed annual interest rate.

Basically, it is a legal agreement or contract between the property developer and the investor. The contract will explain how development company will use the money and when they will repay the money to the investor.

How does it really work?

Suppose a development company has got planning permission for a large scale development and they are looking for capital immediately. Now banks will not give money for the complete property development projects. So what kind of actions will the company take?

In order to get the capital for the first stage of the project, they have decided to issue a bond which will raise almost £2m. That's how they will get the money.

Advantages of property bonds

Property bonds are really becoming popular. But there is a reason for it. Let's take a look at some of the advantages of property bonds-

Fixed Interest rates

A fixed interest rate will make sure that your capital rate is growing over time. Even if the economy slows down for some reason, the interest rate will remain the same and your capital will keep growing paid.

Liquidity

It is another reason why it is so popular. If you want, you can trade your bond on a stock exchange. Of course, the bond has to be legal.

Exit Options

Sometimes property bonds may have an early 'exit' option. In that case, the investors will be able to end their contract with the developer, and they will get their primary investment back. However, the investors must give the interest that is due to them.

Convenient

Property investments can be complicated. The investor has to deal with a lot of things like maintenance fees, insurance payments, council tax, stamp duty, etc.

These things will give you a big headache if you are an investor. Many investors may not want to deal with these issues. For them, property bonds are perfect. With property bonds, they don't have to deal with these nuisances. The investors just have to invest their money and relax.

Is it suitable for you?

To be honest, it depends entirely on you. Although, it's not a risk-free investment, Property bonds are relatively safe. If you want to produce passive income from your own venture, which gives you interest at an attractive rate, then private bonds can be a safe option.

With all said and done, keep in mind that it is not a risk free investment. You won't be able to take back the money before the agreed term. It is not regulated by FCA( Financial Conduct Authority).