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Loan Note Investment – What Can I Earn?

Farrbury Capital | July 2, 2019

If you’re new to loan note investment, one of your key questions will no doubt centre around just how much you can expect to grow your capital over the course of the investment. As such, we’ve modelled the expected returns over the course of a seven-year loan note investment, showing how much interest you can expect to earn, along with relevant bonus payments.

“Loan note investments can generate different rates of interest depending on the terms of which the loan note issuer has set out. It’s important to understand this prior to investing, in order to secure the most compatible option for your individual objectives. We’ve modelled the returns that can be achieved through both an interest payment option and a compound interest payment option in order to demonstrate the various growth strategies.”

James Hayward, Investment Director, Farrbury Capital Partners

The difference is not inconsiderable, as the tables below demonstrate. Under the interest payment option, the investor receives their interest annually, on the anniversary of the date on which they invested. Bonus payments based on the longevity of the investment are payable along with the interest.

FarrburyCapital_Interest_table

Under the interest payment option, an investor who puts £100,000 into the loan note initially will receive a total of £220,000 back, including interest payments, bonuses and the initial capital. That’s a profit of 120% over the course of the seven years.

The alternative route is to agree a compound interest payment arrangement. This will be at the discretion of the investor and the loan note issuer. Under such an arrangement, the interest payable increases significantly.

FarrburyCapital_CompoundInterest_table

As the table shows, the investor’s initial £100,000 becomes £301,983.21 at the end of the seven-year loan note period. This equates to a return of just under 202%.

“Loan note investment has outstanding potential when it comes to capital growth. It offers all the stability that is associated with property market investment, but with far greater potential when it comes to returns. Even in an exceptionally buoyant property market, returns of 202% – or even 120%, for that matter – over the course of seven years are extremely unlikely.”

James Hayward, Investment Director, Farrbury Capital Partners

Please contact Farrbury Capital Partners by emailing info@farrburycapital.com or calling 0203 973 1510 for further details.