How to Invest in Property Development

Four routes: joint ventures, loan notes, funds or a site

Each route gives you something different to hold. That decides who is paid first, how easily you can leave and what protection you have.

Joint venture

In a joint venture, your land or capital sits alongside a developer's team on terms agreed in writing. The partners often hold the scheme through a company set up for it.

Partners' equity is paid after every lender, and it carries any loss first. The agreement sets out who funds each stage, who decides what and how profit is shared. Read how joint venture property development works with us, and how joint venture finance sits beside senior debt.

Development loan notes

Here you lend money to a developer's company, usually for interest and repayment on a set date. The FCA describes a mini-bond as "essentially an IOU issued by a company". The FCA also warns about unregulated loan notes and mini-bonds.

The FCA says mini-bonds "are considered a high-risk investment". They are "highly illiquid, which means they can't easily be converted into cash". There is "normally no protection" from the Financial Services Compensation Scheme. If the issuer fails, "you could lose all your money".

Property funds

A fund pools money from many investors, and a manager chooses and runs the schemes. You own units or shares in the fund, not the land.

The FCA says many high-risk investments are not regulated by it. Ask whether the fund itself is authorised, then check the manager on the FCA's Financial Services Register.

Buying a site yourself

You buy the land, take the planning risk and pay for the build, often with a development loan. If the scheme works, the profit is yours. So is every loss.

Be careful with plots sold to investors in a field "with planning potential". The FCA lists land banking as a high-risk investment. Our guide to land banking shows how to check a plot before you pay.

Due diligence on a developer

A scheme is only as good as the people who run it. Check them before you check the numbers.

1. The company. Companies House shows, free, the officers, past company names, charges and insolvency information.
2. The people. Who leads the scheme, and which schemes have they finished? Ask for addresses you can visit.
3. Planning. Search the council's planning register for the site. Is there a consent, or only a hope of one?
4. The build. Who builds it, at what fixed price, and who pays if the cost rises?
5. Your money. Where does it sit, and what security or share do you get in return?
6. Authorisation. If a firm promotes or arranges the investment, check it on the FCA's Financial Services Register.
7. The paperwork. Every term in writing, read by your own solicitor before any money moves.

The FCA says the Register is "a public record of firms, individuals and other bodies" that are, or have been, authorised. It advises you to check "any individual carrying out regulated activities on your behalf".

Risks and scams to recognise

Honest schemes lose money too. Planning can be refused, build costs can rise and homes can sell for less or more slowly than planned. Lenders are repaid first, so the investors' equity takes the hit.

The FCA says high-risk investments "should always be treated with caution". For them, "you must be prepared to lose all your investment". You are unlikely to have access to the FSCS or the Financial Ombudsman Service if things go wrong.

Scams look different. The FCA's ScamSmart lists several warning signs, including:

1. Is it unexpected? A call, email or message you did not ask for.
2. Do you feel pressured to act quickly? A deadline, a "last unit" or a discount that ends today.
3. Does the offer sound too good to be true? The FCA says fraudsters "often promise tempting rewards, such as high returns on an investment".

Tax pointers: SPVs, trading and advice

Tax depends on how you hold the investment and what you do with it. We do not give tax advice, so take these as pointers to discuss with a tax adviser.

How you hold it matters. You can invest in your own name or through a company set up for one scheme, often called an SPV. The tax on profits, on taking money out and on buying differs between the two. Our guide to buying UK property through a company (SPV) compares them.

What you do with it matters too. HMRC looks at the facts, such as why you bought and how long you held. It then decides whether the profit is trading income or an investment gain. See development profits: trading vs investment tax for how HMRC draws the line.

Take tax advice before money goes in, when the structure can still change.

What a development partner expects from investors

A good partner asks as many questions as you do. Here is what we expect from a landowner or partner who brings land or capital to a scheme with us, on terms agreed in writing.

1. Clarity on what you bring. Land, capital or both, and the value agreed in writing.
2. A scheme in our range. We take on schemes from £3M to £150M GDV.
3. Patience with the money. It stays in the scheme until it sells or refinances, unless the agreement says otherwise.
4. Rules agreed up front. Who decides what, how funding calls work and what happens on a default.
5. Your own advice. Independent regulated financial, legal and tax advice before you sign.
6. No promised return. We never publish a standard split or a target return. Each scheme's terms are agreed and written down.

How we take part depends on the stage. We can co-invest alongside you, take all of the risk, or work for a percentage or a fee. Our build contract is priced separately, so the build cost stays visible.

Own a site, or weighing up a scheme with land behind it? Get a free site review, and a director tells you what we can do on it.