Example 5: Early Redemption
£250,000 9%pa Fixed Income Promissory Note over 3 Years.

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Step 1: Sign the note
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

A promissory note is drafted and signed by the investor and one of the partners of Adavo Property.

Step 2: Place capital on account in escrow
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

£250,000 is lodged with Chadwick Lawrence LLP solicitors in our designated escrow account. Chadwick Lawrence are the sole signatories on the account and can only release money in accordance with the promissory note terms and conditions. Your interest begins on the day that the money hits the account.

Step 3: Property allocation
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

The capital advance of £250,000 can either be used for a single property or split into 2 tranches of £150,000 and £100,000. Each tranche will function in exactly the same way as an individual promissory note and will entail six properties each over the three year term. This means an expected 12 properties will be bought and sold over the term. On occasion an opportunity may present itself at a higher level and we may opt to use the note in full to buy a property around £200,000 - £220,000.

The note, whether single or seperated, will progress as standard with suitable properties allocated to this specific note and each purchase progressed. You will be notified of each transaction as they progress. Professional fees relating to each purchase (such as RICS survey fees, searches etc) will be drawn down when needed in accordance with the terms of the note. Any property purchase will have its value confirmed by an independent RICS valuation and we will aim to buy for around a 15-20% discount. The note will be self contained and will operate within the £250,000 budget when all purchases are taken into account.

Step 4: Purchase completion
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

For every purchase we will ensure all conveyancing has been completed and all valuations, searches etc have returned without issue before we proceed with any purchase completion. The purchase capital is drawn down from escrow and legal charges over all purchased assets are immediately arranged.

Step 5: Same day legal charge
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

Your capital is either in escrow or backed by a first legal charge over any and all properties it has been used to buy. The legal charges will be for the full RICS value of each property giving additional cover above and beyond your capital advance. All charges are arranged on the day of each completion and will be the only charge lodged against the property. As per the terms of the note we are legally obligated to seek your approval before any other charge is arranged, giving peace of mind that you are the only creditor in the queue for any asset your capital has funded.

Step 6: Renovation
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

All renovation works take place over a 4 week period from the date of legal completion and each one usually increases the value of the property by around 10-15%. In this example each renovation fee will vary in accordance with the work required to bring each property up to standard. The renovations will be allocated a budget that ensures the amount of capital from the note allocated to that particular purchase will be able to cover all costs. Each renovation will proceed immediately after legal completion and the funds are drawn down in 3 stages; 50% upfront to pay for the bulk of materials, 25% at the halfway stage and 25% upon completion of works. Noteholders are welcome to visit any property bought with funds from their advance and check up on progress.

Step 7: Sell the property
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

We begin to market each property during its conveyancing stage and have usually placed the finished property with an existing investor by the completion of renovation works. If for any reason the sale is not already arranged we market the property via existing networks and partners. A well presented property in show home condition that yields 10%+ from rent is expected to sell on the open market inside 4 weeks.

Step 8: Capital returned to escrow
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

On the day of legal completion of each sale the original capital used is returned to escrow and the legal charge is released. The whole process is expected to take 5/6 months from start to finish. This allows two cycles per year for each tranche of allocated funds.

Step 9: Interest paid
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

At the end of the first year interest is paid. In this example of a £250,000 note with a 9%pa coupon we would pay £22,500 in interest at the end of the first year. This is transferred via BACS to your designated account. The income is fixed and not subject to any movement in the market.

Step 10: Notice served for early redemption
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

Usually the promissory note would run its full term; 3 years in this example. However, on occasion the note holders circumstances can change requiring the capital advance be returned ahead of schedule. Under the terms of the promissory note notice the note holder would simply serve notice of intention to recall the advance. The standard notice periods are 6 months for a 1 year note and 12 months for a two or three year note. The notice period is then see out and the capital returned along with any further interest due.

Step 11: Repeat the cycle
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

This example is a three year note that only runs two years. Over the course of the two years we would expect to use the capital over a dozen times; with a six months period for cycles of any value. This will entail over a dozen legal charges with each time a property is sold, the charge is then released and the money returned to escrow ready for the next purchase. This limits the effect of any movement in the general UK residential market as your charge is against several properties with recent valuations and usually only lasts 3 or 4 months. This is preferable to a single charge over the two years as its value would then ebb and flow with the market.

Step 12: Capital repaid
Example 5: £250,000 9%pa Fixed Income Promissory Note over 3 Years.

At the end of the notice period the capital is repaid along with the interest accrued during the notice period. In this example the original advance of £250,000 along with the second interest payment of £22,500 is transferred on the date of redemption. A total of £50,000 has been earned while enjoying 100% capital protection.


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