At first glance it can seem that owning real estate is one of the more solid and robust types of investment, capable of providing moderate income as well as exposure to broader property market growth.
In fact, an investment in real estate credit can prove to be much more resilient in times of market correction and can often outperform in the long term. Even in property market booms like we have seen in the UK, an investment in credit can provide a rate of return comparable to that of direct property investments.
The chart above shows the outperformance since 2014 of a UK based real estate bridging credit fund over the Halifax House Price Index; 30.9% to 26.1%.
The fund's loan to value (LTV) ratio normally does not exceed 70%, thereby creating a 30% margin of protection for a creditor in case of a market drawdown.
Reduced market risk and a decent interest income are advantages of real estate credit investments over direct property ownership.
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