Real Estate Terms Dictionary
Definition of 'Bond'
According to the Investopedia entry, a bond, or a fixed-income security, is "a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate."
What is a Bond:
If you are an investor, you may consider lending money to companies, the city or even the government, in order to receive, in return, fixed and regular interest payments for a pre-determined period of time.
In turn, companies, the government or municipalities may use the money to finance various projects.
Bonds are considered to be less risky than stocks, especially since the stock market can be quite volatile. Nevertheless, they are not completely risk-free. In fact, the more interest you receive for a bond security, the riskier the investment tends to be. The safest bonds are considered to be those issued by the US government - the Treasury - and these tend to be at a lower interest rate.
Bonds are usually of two types:
- Individual bonds, which have a pre-established date when the loan needs to be repaid in full (the "maturity date"). The disadvantage is that an investor needs to have a lot of money in order to build a strong bond portfolio;
- Bond funds, which do not have a maturity date on the loan, but they can offer instant diversification.
Examples of bonds include treasuries (the safest bonds, but with a low interest - they are usually sold at auction), treasury bills, treasury notes, savings bonds, agency bonds, municipal bonds, and corporate bonds (which can be among the most risky, depending on the company).
Here's a real-life example from one of the properties researched on PropertyShark:
The glossary is intended to provide real estate professionals and home buyers with a basic understanding of various specialized terms related to legal rights over a property. All terms appear in public records such as ACRIS. We do not take responsibility for the legal accuracy of the definitions provided and ask that use of these explanations in a legal setting be made only after checking with a lawyer or another specialist in the field.