High Yield, Hidden Traps: Property Development and Housemartin Compared

Property has created substantial wealth over generations, but rarely overnight. When an investment promises a return of 12%, 15% or even more a year, the most useful question is not “How much could I make?” but “What risks are that extra yield hiding?”

There is nothing automatically wrong with a high-yielding investment. Higher returns can compensate investors for taking additional credit risk, accepting less liquidity, funding a more complicated or risky project or putting capital into an investment where repayment depends on a particular event going to plan.

The danger comes when the headline percentage becomes the investment case, or when these additional risk factors are not made clear upfront

Why Yield Alone Tells You Very Little

Two property investments might both involve bricks and mortar but expose investors to completely different risks.

That final point matters. Whilst Housemartin investments can be resold on the Exchange, they are not a cash product and should not treat the Exchange as an instant-access savings account.

Why Development Loans Can Pay 12%–15%+

A developer paying a very high interest rate is doing so because they need that capital to get the development project off the ground. Investors are effectively being paid to accept some combination of construction risk, planning risk, cost overruns, refinancing risk and uncertainty over the eventual selling price.

Imagine a development expected to cost £3 million and sell for £4 million. On paper there appears to be a substantial margin, which is how such loans can offer yields of over 10%.

But construction costs rise. Completion is delayed. Unanticipated problems arise. Mortgage rates remain higher than expected. Buyers negotiate harder. The development eventually achieves £3.5 million rather than £4 million and that financial cushion has dramatically shrunk

The critical issue is therefore not simply whether there is a property behind the investment. It is where the investor sits in the capital structure, how much debt exists ahead of them, what the completed development value needs to be, and where the money for repayment will ultimately come from.

A charge over property can be valuable security, but security should never be confused with certainty of repayment.

Be Careful With LTGDV

Development loans are often promoted using LTGDV — Loan to Gross Development Value. A figure such as 65% LTGDV can sound reassuring, but it is not the same as a 65% loan-to-value mortgage.

GDV is the estimated future value of the completed development, not necessarily what the site is worth today. If a project fails halfway through, further construction costs, professional fees and selling costs may still be required before that value can be achieved.

So investors should look beyond LTGDV and ask: What is the property worth today? How much will it cost to finish? Who ranks ahead of me? And what happens if the site has to be sold unfinished?

A low-looking LTGDV can therefore give a misleading impression of how much real security exists.

Income-Producing Property Is a Different Proposition

Housemartin approaches property differently. Rather than principally funding a developer who needs to build a property and subsequently sell or refinance it, Housemartin investors lend to SPVs that own completed residential properties configured for supported living. These properties are typically leased to supported-living providers, housing associations or charities on long term leases. Investor interest is fixed under the relevant loan agreement, while the underlying rental income services that obligation.

Most of the leases also contain contractual rent-review provisions linked to measures such as CPI, CPIH, RPI or the Regulator of Social Housing’s formula (CPI+1%). The exact mechanism varies by property and lease, so inflation protection should never be assumed without checking the individual investment documents.

This makes the investment proposition fundamentally about producing income over time, rather than achieving a development profit at a future exit.

No Investment Is Risk-free

Housemartin investments remain investments. A supported-living provider can experience financial difficulties. Rental payments can be interrupted. A lease might not be renewed. A property could ultimately be worth less than expected. And although investors can offer their holdings for sale on the Exchange, there may not be another investor willing to purchase them at the price — or at the time — required.

That is why investors should look beyond the headline yield and consider the property, counterparty, lease, price, term and diversification of their overall portfolio.

The Boring Route to Building Wealth

Getting rich slowly is not a particularly exciting sales pitch, but that is how to build wealth from property investments., 

An investor earning a sustainable income year after year, reinvesting that income and spreading their capital across different properties and counterparties does not need one spectacular investment to succeed. Compounding does more of the work as time passes.

Housemartin gives investors access to supported-living property-backed loans from £1, with regular interest payments, the ability to diversify across more than 120 properties, with the opportunity to protect their investments from tax with an Innovative Finance ISA.

The highest yield is not necessarily the best investment.Sometimes the more useful question is: how reliably can this investment keep producing income for me over the next five or ten years?

Are you ready to build wealth by investing for the long term in supported living properties across the UK? Join Housemartin today.