Property loan notes have become some of most sought-after fixed-interest investment products for expats, particularly in the UK and Europe. In a diversified portfolio, property investors also consider real estate investment trusts (REITs). But which option is better suited for expats? In this article, we'll cover what you need to know to make an informed decision.
Get to Know Property Loan Notes
Property loan notes are financial instruments used to raise development capital for property developers. Investors essentially lend money to a company, who use the funds to buy, refurbish, or refinance properties. The issuer then repays the investor the principal, along with the agreed-upon interest after a specified time. That’s often once the property is refinanced or sold.
Key Features of Property Loan Notes:
Asset-backed investments for loan notes secured by the underlying property or land.
Potentially higher fixed returns compared to traditional investments
Lack of direct property management responsibilities for the investor
Capital may be locked in until the note matures (often when the property is sold)
Real Estate Investment Trusts (REITs)
REITs are essentially investment companies that own, operate, or finance income-producing properties. Like mutual funds, these types of companies generate returns for their investors through property. As with loan notes, individual investors can gain exposure to the real estate market without actually owning properties.
Key Features of REITs:
Diversified exposure to various real estate sectors (e.g., residential, commercial, industrial)
Liquidity, as most REITs are publicly traded
Potential for regular income through dividends
Professionally managed portfolios
Weighing Your Investment Options
Liquidity
While property loan notes offer potentially higher returns, the capital is typically locked in until the property is refinanced or sold. REITs, on the other hand, provide greater liquidity as they are publicly traded.
Risk vs Return
Property loan notes are generally considered riskier investments, as they are tied to specific development projects. REITs offer a more diversified approach, mitigating risk through portfolio diversification. However, property loan note investors get more returns and can take a profit share if they wish. That more than makes up for the added risk, which is often minimal in developed markets like the UK and EU.
Investment Minimums
Property loan notes often require higher investment minimums. That makes it more appealing to high-net-worth expats. While REITs can be purchased with relatively smaller amounts, finding the right fund to invest in can be tricky.
Tax Considerations
Both property loan notes and REITs have unique tax implications for expats, which should be carefully evaluated based on individual circumstances and the country of residence.
When all’s said and done, your investment strategy will do the most talking. For the majority of expats, property loan notes tick the right boxes. They don’t have to take any mortgage, manage any property, and can re-invest their money upon note maturity. It pays to get sound financial advice before you invest your hard-earned money, and that’s where experts at International Wealth Ventures come in.