When investors look for predictable returns, two structures often come up, fixed income investments and loan notes. On the surface they can appear similar. Both usually offer defined returns, fixed terms, and an emphasis on income rather than speculative upside.
The difference lies in structure, security, and what actually happens if things do not go to plan. That distinction matters far more than headline percentages.
Understanding fixed income in a property context
Fixed income property investments are structured to deliver a pre-agreed return over a defined period, typically backed by real assets.
Rather than relying on rental performance or resale timing, returns are contractually set and linked to an underlying asset base, often land or property acquired at a discount to market value.
The focus is on predictability, capital discipline, and downside protection rather than chasing maximum yield.
What loan notes actually are
Loan notes are, in simple terms, debt instruments. An investor lends money to a company, and the company promises to repay the capital plus interest at a later date.
The investor does not usually own the underlying asset. Instead, they rely on the borrower’s ability to service the debt and repay it in full.
Some loan notes are secured, others are unsecured, and the quality of that security varies widely. This is where risk can be misunderstood.
The key difference, asset backing vs creditor position
With a fixed income structure linked to land or property assets, the investment is typically underpinned by tangible real estate.
With loan notes, the investor is a creditor. If the borrower runs into difficulty, the investor’s position depends on:
-
whether the loan note is secured or unsecured
-
where it sits in the creditor hierarchy
-
the strength of the borrower’s balance sheet
-
how enforceable the security actually is
In practice, many retail investors do not fully appreciate where they rank if something goes wrong.
Security is not a buzzword, it is everything
Both fixed income products and loan notes often use the word “secured”. That word alone is meaningless without context.
Security can mean:
-
a legal charge over land or property
-
a floating charge over company assets
-
a debenture behind senior lenders
-
or security that only becomes relevant after other creditors are paid
A fixed income structure that is directly tied to land ownership behaves very differently from a loan note secured behind bank finance or other senior debt.
Predictability of returns
Fixed income structures are designed so that returns are defined from the outset. The return does not increase if a project performs exceptionally well, but it also does not depend on optimistic assumptions.
Loan notes often rely on the borrower’s ongoing cash flow to service interest payments. If projects are delayed, costs increase, or refinancing becomes harder, payments can be disrupted even if the underlying idea remains viable.
Predictability is not just about return level, it is about how many variables can interfere with delivery.
Exposure to business risk
Loan notes expose investors directly to business risk. You are lending to a company, not buying into an asset.
If the business model fails, management changes, costs rise, or refinancing is unavailable, loan note holders can be affected regardless of whether the underlying project eventually succeeds.
Fixed income structures that are asset led reduce reliance on business performance alone, shifting emphasis onto the value and control of the underlying land or property.
Liquidity and exit assumptions
Neither structure should be treated as liquid. However, loan notes often rely on a single repayment event, such as refinancing or asset sale.
If that event is delayed, investors may have limited recourse beyond waiting.
Asset-backed fixed income strategies typically build in multiple layers of value creation and exit optionality, rather than one narrow repayment trigger.
Risk is often mispriced
Higher interest rates on loan notes are often presented as compensation for risk. In reality, risk is frequently underexplained rather than properly priced.
A lower, fixed return backed by tangible assets can, in many cases, represent a safer risk-adjusted outcome than a higher headline rate dependent on a company’s ability to refinance or sell under pressure.
Which is safer?
There is no universal answer, but the structure matters more than the label.
In general:
-
asset-backed fixed income structures prioritise capital preservation and predictability
-
loan notes prioritise yield but expose investors to borrower and refinancing risk
For investors seeking stability, clarity, and reduced exposure to operational risk, fixed income structures tied to real assets are often the more conservative choice.
To summarise
The most common mistake investors make is comparing percentages rather than structures.
Understanding where your capital sits, what it is secured against, and what happens in a downside scenario is far more important than chasing an extra point or two of return.
When viewed through that lens, fixed income investments backed by tangible property assets tend to offer a clearer and more controlled risk profile than loan notes, particularly in uncertain economic conditions.
