With global inflation reaching a multi-decade high of 9 per cent, over 85 per cent of central banks worldwide have tightened monetary policy and raised interest rates in quick succession to tame inflationary pressures and avoid a recession. According to the United Nations World Economic Situation and Prospects (WESP).
Smart investors are now looking for a more secure form of investment in real estate as a hedge against inflation. Land banking provides a low risk and a low entry barrier compared to other income-producing properties making it a more viable opportunity for investors.
In this article you will get to know:
•What land banking is
•Its advantages
•Its disadvantages
•Factors that contribute to higher ROI potential
•How to make money with land banking
•Our conclusion
Let’s proceed…
What Is Land Banking?
Land banking is the process of purchasing and holding undeveloped land with the aim of selling it in the future at a higher price. This strategy is often used by developers, investors, and government agencies to acquire land in strategic locations before it becomes developed and more expensive.
Land banking is one of the oldest and least complex forms of real estate investment which anyone can get started with.
Merits And Demerits Of Land Banking
Land banking can be a viable investment strategy for investors who are looking to purchase and hold onto undeveloped land with the goal of selling it at a higher price in the future. While land banking is typically a long-term investment, it can offer several potential benefits, including:
1. Potential for Appreciation: One of the main advantages of land banking is the potential for appreciation in the value of the land over time. As the population grows and demand for land in strategic locations increases, the value of the land is likely to increase as well.
2. Hedge Against Inflation: Land is a finite resource, and as such, it can serve as a hedge against inflation. As the cost of living increases, the value of land is likely to appreciate as well, protecting investors from inflationary pressures.
3. Lower Maintenance Costs: Compared to other real estate investments, such as rental properties, land banking can offer lower maintenance costs. Since the land is typically undeveloped, there are fewer ongoing costs associated with managing and maintaining the property.
4. Potential for Development: Depending on the location and zoning laws, there may be opportunities to develop the land in the future, further increasing its value potential.
However, land banking is not without risks. Some potential drawbacks of land banking include:
1. Lack of Income: Unlike rental properties, land banking does not generate any income. Investors must be prepared to hold onto the property for an extended period without any income generation.
2. Lack of Liquidity: Land can be difficult to sell quickly, particularly if there are no buyers in the market at the time. As such, investors must be prepared to hold onto the property for a longer period to ensure a profitable sale.
3. Environmental and Regulatory Risks: Depending on the location of the land, there may be potential environmental or regulatory risks that could impact the value of the property.
Factors That Contribute To Higher ROI Potential In Land Banking
The potential ROI for a land banking investment can vary greatly depending on several factors, such as location, size, zoning laws, and development potential. Generally, properties located in high-growth areas with a strong potential for development and increasing demand will offer higher ROI potential.
Some examples of areas that may offer strong potential for land banking investments include growing cities or suburbs with limited land availability, areas experiencing population growth, and regions undergoing significant infrastructure development, such as new highways or airports.
It’s also important to consider the type of development that could be pursued on the land in the future. For instance, properties located in areas where there is strong demand for commercial, industrial, or residential development may offer greater ROI potential than those with limited development potential.
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Investors should also consider the cost of acquiring the land and any expenses associated with holding onto it, such as property taxes and maintenance costs, as these can impact the overall ROI.
It’s worth noting that land banking investments are typically long-term and require careful planning and due diligence to ensure success.
Land banking can be a great way to invest in real estate and generate long-term wealth. By following the tips above, you can increase your chances of success.
How to make money with land banking
Sell the land for a profit.
Once you have purchased a piece of land, you can sell it for a profit when the value has increased. This is the most common way to make money with land banking.
This is a fundamental strategy in land banking, buy low and sell high. Selling the land for a profit is the most straightforward and common way to make money through land banking. As the value of the land increases over time, you can capitalize on the appreciation to generate a substantial return on your initial investment. It’s crucial to stay informed about market trends, economic developments, and local factors that may influence the value of the land.
Develop the land and rent it.
Once you have developed the land, you can rent it out to businesses or individuals. This can generate a steady stream of income over time.
Diversifying your land banking strategy, you can also consider renting out the developed land. Once you have completed the necessary improvements and infrastructure, you can rent or lease the land to businesses or individuals, creating a reliable and steady stream of income over time. This method provides the advantage of ongoing cash flow, adding a layer of stability to your investment portfolio.
Develop the land and sell it.
You can also develop the land and sell it for a profit. This can be a more complex and expensive option, but it has the potential to generate higher returns.
This is another avenue to explore in land banking. Developing the acquired land and selling it for a profit. While this option is more intricate and may require a higher initial investment, it has the potential for even greater returns. Developing the land could involve obtaining the necessary permits, implementing infrastructure improvements, or even subdividing the property for residential or commercial purposes. This approach requires careful planning, thorough research, and a willingness to navigate through potential challenges, but the rewards can be significant.
In conclusion, while land banking may offer potential benefits such as a hedge against inflation, high ROI opportunities and lower risk compared to income-producing properties, the specific factors that contribute to ROI potential can vary greatly depending on the location, development potential, and cost of acquiring and holding onto the land.
It is important for investors to carefully weigh the risks and benefits before deciding if it is the best form of real estate investment for their particular situation.
If you’re searching for high-yield Land Banking Investment Opportunities, at RealEstateMoses you get access to exclusive projects with an exit-focused pre-development strategy that offers property maintenance, administration and marketing services in Africa, North America, Asia, and Europe.
Moses Oyong is a luxury real estate advisor with a passion for arts and culture, music, fashion, and all things luxurious. With a keen eye for beauty and attention to detail. I strive to help my clients find their dream homes that reflect their unique sense of style and taste whilst providing them with the right information to ease the stress of the decision-making process.
