LendInvest, a real estate lending company, issues retail bonds with a yield of 6.5%.

Real estate finance specialist LendInvest has issued a third retail bond, this time offering investors a chance to earn 6.5 percent of the public business’s return.

The firm, which offers loans to landlords, developers and intermediaries in the UK, is offering investors in its old bonds – returning 5.25 per cent and 5.375 per cent – the chance to exchange them for its new ones.

Although more than 6 percent is a better rate than you can get from a savings account, people should always be careful when buying company debt through such bonds because the money you earn depends on whether the firm will not go bankrupt.

Property finance specialist: LendInvest offers loans to landlords, developers and brokers in the UK

This makes it an investment only for those willing to take the risk and do some research into LendInvest’s financial sustainability – find out how below.

Unlike a savings account, you are not protected by the UK’s Financial Services Compensation Scheme, which protects against losses of up to £85,000.

LendInvest’s retail bonds will be tradable on the London Stock Exchange’s Orb market, unlike “mini-bonds” that need to be held until maturity.

Regulators imposed a permanent ban on offering mini-bonds to ordinary investors after thousands lost money in a series of devastating collapses, including London Capital & Finance, which wiped out the savings of many elderly and casual investors.

Retail bonds and mini-bonds have always come with serious warnings about risk, including from This is Money whenever we write about themincluding the following items.

– The different interest rates on retail bonds and mini-bonds reflect the level of risk associated with them – generally speaking, the higher the rate offered, the higher the risk.

– Be careful not to invest too much money in one or more bonds.

– You should think about a corporate bond fund that will lend to large firms and spread your risks.

– Bonds held in an Isa can provide tax-free returns, but investors should examine the potential tax liability of individual investments.

Landinvest says it is a technology-focused real estate finance asset manager with £2.9bn of funds under management in March this year and a disruption in a £1.6tn market which it describes as “on dominated by manual paper processes and poor customer service”.

The firm’s latest bond requires a minimum investment of £1,000 and has an official deadline of August 3, but retail bond offers often close earlier if they prove popular enough to quickly hit the firms’ fundraising targets.

It matures in August 2027, if all goes well, you should get your principal back, and the first interest payment – or coupon – is due in February 2023.

The new bonds are expected to start trading on London’s Orb market around August 9. The firm’s older bonds mature this year and next.

Retail bonds like LendInvest, which can be traded on Orb, allow investors to make money early if you sell if they trade higher than the offer price, but you can also lose if the price is lower. The Orb Market offers an exit route for investors looking to exit.

>>>Find below a checklist of how to research the health of companies and evaluate the prospects of individual bonds

What are investment experts saying about the Orb market and retail bonds?

Leith Khaloff, head of investment analysis at AJ Bell, says: “Things have been quiet in terms of new retail bond issuance recently, and expectations of higher interest rates and an uncertain economic outlook are likely to mean fewer companies looking to raise capital, or pay a high coupon if they do.

“When buying a retail bond, investors should do their homework and read the prospectus to understand the financial strength and risks associated with the company issuing the bond, as well as the terms of the bond itself.”

Jason Hollands:

Jason Hollands: “Given high inflation and rising interest rates, bond prices are now subject to significant volatility”

Jason Hollands, managing director of Evelyn Partners and Bestinvest, says: “While the headline yield of 6.5 per cent on this bond is undoubtedly attractive, caveat emptor applies.

“Firstly, it’s important to understand that these bonds will be traded in the secondary market after they are issued, so when you invest, the value of your capital is at risk and you may not get back what you invested when you have to sell before their maturity.

“It’s not like a high-interest savings account.

“Given high inflation and rising interest rates, bond prices are currently subject to significant volatility, and with the potential for a recession on the horizon, defaults in the bond market will almost certainly increase over the next couple of years.”

Hollands emphasized that unlike investing in a diversified bond fund, here you invest directly in a retail bond issue, which is not covered by the Financial Services Compensation Scheme.

“When evaluating any individual bond issue, you need to look beyond the yield on offer, but be sure you understand the creditworthiness of the issuing entity and the place of your bonds in the overall capital structure of the issuing group,” he says.

Sam Benstead, deputy collective editor of Interactive Investor, says: “Bond markets, sensitive to high inflation and rising interest rates, fell. This means that the productivity has increased and started to look more interesting.

“But it’s important to remember that bond investors are natural worries. They want to be sure that when they buy the debt of companies or governments, their income is not wiped out by inflation.

“They also scrutinize the quality of the bonds to make sure they will be paid the interest on them and get their principal back in full.”

Handy Checklist: What You Need to Know Before Buying Mini Bonds and Retail Bonds?

* Any investor buying individual stocks or bonds would be wise learn the basics of reading a balance sheet.

* When looking at bonds, carefully examine all of the issuer’s most recent reports and accounts. You can find official stock market announcements, including the results of the It’s Money campaign, here.

* Check if cash flow is healthy and stable. Also look at interest coverage, a ratio that shows how easily a firm will be able to repay the interest on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on interest. Read our investment guide like this one here.

* It is very important to find out what is secured by the debt on the bonds and where you would stand in the queue of creditors if the issuer were to go bankrupt. This should be included in the details of the bond offering, but contact the issuer directly if this is unclear.

* Consider whether you should spread your risk by buying a bond fund rather than tying up your money to just one company or organization.

* Inexperienced investors who are unsure about how retail or mini bonds work or their potential tax liability should seek independent financial advice.

* If the interest rate is what attracts you to a bond, consider whether it’s worth the risk. Generally speaking, the higher the bid, the higher the risk.

* If the issuer is a publicly traded company, you should check the stock’s dividend yield to see how it compares to the bond yield before making a buying decision. Stock prices, charts and dividend yields can be found on This Is Money here.

* Investors should bear in mind that it may be more difficult to assess the risk associated with investing in some bonds than others – it is easier to assess the likelihood of Tesco going bust than smaller and more specialized businesses.

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LendInvest, a real estate lending company, issues retail bonds with a yield of 6.5%.

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