Land Banking: Your Best Bet In Time Of Crisis Like This
What is Land Banking?
Land Banking is the process of buying and holding land for future sale or Development. The goal of land banking is appreciation.
When you invest in Real Estate you are pursuing two different goals:
- Cash flow
- Capital gain
When it comes to the small investor, land banking almost always means find a parcel of predevelopment land and holding on it until its market value has reached the point the land will yield a handsome profit by selling to builders. The object then is not cash flow. but appreciation.
The strategy is simple; buy land in an area where the population growth is pushing out with steady pressure from the urban metropolitan and suburbs. Then hold the land until builders are eager to construct houses, shopping complexes, warehouse etc.
Overhead of the Investment is largely limited to the basic upkeep of the property and payment in taxes. Managing the investment means keeping tabs on the market, the time is right, advertising the property and selling it.
3 Factors To Consider in Land Banking
The parcel of land situated for this purpose most meet 3 important criteria:
- The land most be a virgin land- it has no construction on it like agricultural land or unimproved land.
- It is in a direct path to urban growth and stands to attract a buyer within the next 3 to 10 years.
- it is zoned for residential, commercial, 0r industrial development, or is a candidate for such zoning.
There are many other factors but these are the basic ones.
Consider this advice in terms of land-banking: you could buy an empty plot of the land tomorrow, ignore it for 10 years and when you return to it, its size and shape will not have changed. Yet its value almost certainly will have. As the global population continues to grow, the amount of available land is going to continue diminishing. Demand will outnumber supply and the value of your investment will rise. It is simple mathematics.
The biggest key factor to successful land banking is performing due diligence before buying the land. This means researching the area and its growth patterns, influx off business, and the city or country plan.
Experience land bankers often engage the services of real estate brokers like us
Land Banking and Stock Market Or Cash Banking
The returns on a parcel of land bought when the market is cool, and sold when the market turns hot, typically exceed returns in the stock market. This is because the land is finite.
There are two critical points in time for your property:
- when you buy it,
- when you sell it.
The good news is that the value historically goes up. As the human population increases, the value of real estate increases.
Effect Of Covid 19 On Land Banking
Regardless of how and when the world fully recovers from the COVID-19 pandemic, there is one thing more certain than others. There will remain a commodity with a constantly dwindling supply yet a constantly increasing demand. That is Land.
Instead of putting your money in a low-yield savings account or an increasingly volatile stock market, you are literally investing in a tangible fixed asset with land banking.
The Savvy investor who buys raw land fit for construction on the outskirts of the booming urban areas positions themselves to reap large profits. And also the the the savvy investor of moderate means who cannot afford land in the centre of an urban area has the outskirts as a fair territory for land banking.
For raw land investors who know how to competently pursue this strategy — that is by leaning on experts for knowledge and experience, conducting extensive due diligence, and selecting strategically placed land — land-banking is a low-risk yet extremely lucrative way to build serious wealth from real estate even in time of crisis like covid 19.