All About Asset Backed Investing

 

There are a number of different ways to invest in property in the UK. From vanilla buy to let to HMOs, care homes and commercial premises, the potential investor has a few options to choose from. For those who fancy an off-hands investing venture, there are peer to peer schemes and asset backed investing. It’s the latter we go on to discuss here:

Asset Backed Security (ABS) explained

ABS is a form of investing money in a business, organisation or individual etc, where the assets can be taken by the investor or sold in order to refund the investor his/her original cash in the event of the borrower defaulting on payment. Assets can be in the form of property, machinery, shop goods, corporate debentures etc. In this way, the assets are used as collateral. This means they provide a form of security for the investor should that company or individual go bust.

Having said that, a borrower having assets doesn’t always mean the investor will receive all the money he or she is due. That’s because the value of the assets may not cover the original sum. In addition, it may take some time for those assets to be sold in the first place. The money may also need to be divided between a number of investors.

How to invest in Asset Backed Security

ASB is achieved with the help of a third party, referred to as a security trustee. The trustee acts in the interests of both the investor and the borrower by facilitating the arrangement and guiding both parties through the process of setting up the arrangement. This is usually achieved via a dedicated account manager.

As time passes, the trustee will also ensure that the investment deal continues unhindered (i.e. the company doesn’t go bankrupt). He or she will then help both parties with the final financial transaction by carrying this out via their own banking process. This is the point where the investor receives his or her money back, together with interest in the form of a lump sum.

In the unfortunate event the borrower does go bust, the security trustee will step in and seize the borrower’s assets in order to pass them to, or sell them to the investor, in line with the amount he or she originally invested.

Benefits they offer to investors

• Much higher returns than investing in high street lenders or many other forms of finance.

• Security in the form of assets, were the borrower to go default with regular monthly payments or the end of the loan period.

• The asset value is expected to rise during the period of the loan.

ABS and Peer to Peer platforms 

Here at Sourced, it’s possible to invest in an ABS deal via our Peer to Peer platform. You’ll also have your own account manager to guide you through the entire process and keep you up-to-date on the borrower’s situation. You can find out about the Sourced peer to peer platform here and where you can receive returns of up to 12 per cent* on your investment.

*This is the maximum available rate on Sourced. Returns may vary. Your capital is at risk.