Using deposit bonds
Published on 2nd May 2008 by Don Ross
Deposit bonds, sometimes called exchange bonds, are a relatively new financial vehicle for this country; although they have been used successfully for some time in Australia and New Zealand.
The bond acts as a deposit guarantee made to a Developer on behalf of their buyer. It replaces the cash deposit buyers would normally be required to pay at exchange. Instead, the investor simply buys the guarantee from the bond provider, usually an insurance company, when reserving the plot and pay the whole property price to the Developer when the house is finished and ready to complete on.
The Guarantee is aimed at helping the following buyers to secure a plot quickly, without needing to hand over the usual cash deposit;
– First time investors who need some time to raise the deposit
– Investors who have the cash tied up or want to hold onto it until completion
– Investors who want to buy more than one property at a time
– Investors who need time to sell another property
For most people it’s a smarter, more cost effective way of purchasing off-plan property and is most attractive on those sites that are selling at least 6 months in advance of completion.
All property investors understand the basics of using other people’s money to maximize the value of an investment. From the basic premise of property investment, using a mortgage to buy a property and using rental income to pay the mortgage repayments so that the whole of the increase in capital value accrues to the investor, through to the complexities of leveraging the value of a portfolio, investors know that there are many ways of husbanding their vital resources, i.e. money. The Deposit Bond is a massively important addition to the serious investor’s tool kit.
Don Ross
General Manager of Ward & Co, has a vast range of experience in both financial services and property development. As an international speaker he has provided the inspiration that has led to wealth creation around the globe.
