THE TYPES OF INVESTMENT AVAILABLE TO INVESTORS
If you stand any chance of securing the best real estate investment, you should take the time to familiarise yourself with the different types of investments available, as this will give you the best chance of getting started in the property investment sector.
There are several different types of investments that you can take advantage of as a first time or experienced investor.
And the type of property investment that is right for you will depend on your risk matrix. For example, a traditional B2L is relatively low risk with a low return, whereas with Crowdfunding you can invest in products that give you a range of income and/or capital growth.Of course, as your life cycle changes you can move across the risk profile in whichever way you feel best suits your needs.Here’s a closer look at the different types of investments available.
Designed to help property investors, no matter what their circumstances and status, bridge loans allow investors to lend money to developers. This is because now investors can loan their money out to developers looking for short term loans and earn a higher yield.
Typically running for 3-12 months, bridge loans are used to provide interim funding solutions for property developers, allowing them to achieve short-term objects before they have secured their main line of finance.
Our bridge loans are secured by a first charge on the property in question. This means that, in the event of a default, our loans stand first in line for repayment, making them less risky than those further down the line.
A bridge loan is typically for up to 70% of the value of the land or building in its existing state, based on a valuation provided by an independent valuer.
Bridge loans are low risk investments that typically provide fixed annualised returns of between 8%-12%.
A Mezzanine loan is a second charge against a property but is also recognised as a form a loan. This loan sits on top of a bank or senior lender and is for a fixed period of time. Mezzanine loans provide a layer of debt funding that fills the gap between the senior debt (usually provided by a bank) and the equity investment.
Mezzanine loans are typically used by property developers who need additional capital for a project but don’t want to give away any equity. Instead, they postpone their return behind the mezzanine debt and pay a fixed return to the lender.
Our mezzanine loans are secured by a second charge on a property, ranking before the equity but behind the bank. These products deliver a fixed return, which is reflective of the total amount of debt on a project and can be between 14%-16%.
Development equity is when a developer requires investors to invest in a property development project and share the profits upon completion.
A core investment product, development equity is usually structured as a profit share, which sits above the senior bank debt in the funding structure and entitles you to a share in the profits of a project.
Each project is unique, however they are typically at one of the following three stages of the development process:
- Planning granted – Planning has been approved, leaving only construction and sales.
- Planning enhancement – A piece of land or property has planning permission to redevelop into something more valuable but there is a possibility to further enhance that planning.
- New planning – A piece of land or property has no planning for redevelopment but is considered to be in a location where redevelopment is likely to be supported.
Sitting above all debt, development equity holds the riskiest position in the funding structure, however the returns can be high.
For investors that like risk and rewards, planning is by far the best option. This is because if the planning works out, you could receive a large uplift in your investment.
For example, if you invest in a project, which does not have planning and you decide to take it through the entire planning process, you could gain huge financial rewards.
This said, it is always important to have a plan B and C when you are looking at a planning application in case it is not granted initially. In terms of your diversified portfolio, we wouldn’t suggest putting all your eggs in one basket but keeping your investment spread across multiple investment products.
ABOUT SHOJIN PROPERTY PARTNERS
Founded in 2009 by Sandeep Puri and Jatin Ondhia, Shojin Property Partners has continued to go from strength to strength, thanks to our commitment to co-investment, and due diligence. Our track record (past products link) really does speak for itself.
Armed with over 100 years collective experience across all areas of the property sector, Shojin Property Partners is the only company that allows you to invest across the entire property sector.
Championing an approach that encourages existing and potential property investors to start looking outside the buy to let sector and diversify your property portfolio, this FCA regulated platform should be your first port of call for all of your property investment needs.
Shojin Property Partners is the only property investment company that offers a range of Debt and Equity opportunities. We charge no management fees to invest but rather co-invest our money alongside yours on every investment. Visit the Why Shojin page to find out how we can help you on your investment journey.