Real Estate Development Bonds (also known as property development bonds) are a key component in any construction project – similar to Subcontractor Bonds, Construction Performance Bonds and Contract Bonds. An alternative source of finance for a developer, the bonds are usually high-interest and issued for a fixed term.
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Many people may struggle to successfully combine returns with financial security in the real estate market. Which is where a real estate development bond comes into play. A type of bond that’s rapidly growing in popularity (alongside Performance Bonds and Contractors Bonds), it’s advantages can’t be ignored.
Real Estate Development Bonds
Real Estate Development Bonds allow a property developer to complete a construction projection by giving them investment to fund it in the form of a loan. Although the exact percentage that each real estate developer receives will depend on the circumstance, what the investor borrows, and the bond issuer, it is usually a more favorable option than borrowing money from a bank.
The process of investing in the development of a property will typically benefit both the developer and the investor. For the investor, this comes in the form of receiving returns from the early stages of the project. The overall returns and profit margin will be based on the value of the real estate at the start of the project.
This type of investment structure effectively bridges the gap left by traditional lenders and banks, allowing investors to receive an income through the real estate they invested in within a timeline that suits them.
As part of the process, a legally binding agreement between the real estate developer and the investor will be created. This will state exactly how the investment will be utilized in the project, what interest is to be applied to it, and the repayment plan. Bond issuers will set these exact terms and will keep you informed throughout the process.
How do they work?
Instead of selling equity or taking out a loan to raise finance for a real estate project, a Real Estate Development Bond can be used. Once an investor seeks a bond, the issuer will determine what the face value is for it.
This face value is what the investor will repay once the term has come to maturity. Within this agreement, it will also include the validity of the bond and the interest rate. The issuer will then pay out the value of the bond to the investor throughout its lifetime.
Why consider bonds for your real estate project?
Whether you’re an investor or a real estate developer, you know that any type of project comes with potential risks. Particularly so if you’re an investor due to the calculated and strategic decisions you have to make when it comes to your investments.
However, you’ll be pleased to know that Real Estate Development Bonds are frequently thought to be one of the safest and most desirable investments. Why? Because of the following benefits that you can reap from it:
They are secured against a physical asset
One big benefit that comes with Real Estate Development Bonds is that it’s an asset-backed investment. Giving you the peace of mind that your capital is protected, if the bond issuer fails to meet the financial agreements within the loan, you will be able to claim the current value of it back.
They are convenient
When navigating the real estate market, you’re looking for a solution that’s efficient and simple. However, there are typically a lot of processes that go into investing in a development project. To ensure that your capital is secure and with minimal risk, a Real Estate Development Bond can be used.
They have fixed interest rates
As aforementioned, another plus point for these types of bonds is that they usually come with fixed rates. Making it easier to repay the bond throughout its agreed term, it’s a benefit that many investors appreciate.
Is a Real Estate Development Bond suitable for my project?
Whether you are an investor or a developer seeking a developer bond, during your real estate development project, you’ll be looking for a way to successfully finance the process.
And although certain types of construction bonds such as Bid Bonds and Subdivision Bonds might also be applicable, a Real Estate Development Bond is particularly useful when taking on a large-scale property project. Similarly to how public works bonds assist with construction projects in your neighborhood, a Real Estate Development Bond will help to ensure long term success in your real estate project.
If you’re looking for bonds that generate some of the best returns available at minimal risk, then this could be the right option for you. No matter what the size of the project, it’s an option that will protect your finances and ensure that the project can be undertaken as soon as possible.
Of course, before opting for this type of bond (or any bond for that matter), it’s a good idea to contact a professional within the industry who will inform you about all of the details surrounding a Real Estate Development Bond.
How Pinnacle Surety Can help
At Pinnacle, we help to guide people as to which type of bond is right for their requirements. With over 25 years of experience, we’re an expert surety bond agency that strives to offer our clients the best bonds for their unique project.
Specializing in a range of bonds from Real Estate Development Bonds to Performance Bonds, Payment Bonds, and Contractors License Bonds, we’re your first port of call when it comes to funding your construction project.
Ensuring that you have access to the best rates available, your real estate development project can become a reality. To find out more about Real Estate Development Bonds, as well as how you can obtain them contact our team today on (844) 612-7238.
We’re here to help with whatever questions you may have regarding these bonds and how the repayments align with the budget for your development project.