If you’re like most real estate investors, you’re probably pursuing
this business with one or two primary goals in mind:
To buy a property and flip it for a profit as soon as possible.
To buy a property and create a dependable source of passive income.
Both strategies are completely legitimate, time-tested methods that have created a lot of wealth for a lot of people in real estate. However, of all the various ways that people pursue real estate investing, one of the most overlooked and underused strategies is a buy-and-hold technique known as “Land Banking”.
The term “land banking” implies almost exactly what it is. Rather than putting your investment into a savings account, some entrepreneurs have taken an alternative approach by acquiring unclassified land and in doing so, parking their cash in a tangible, fixed asset, one that cannot be broken, stolen, or destroyed.
Vacant land gets ignored by most investors because it just doesn’t sound exciting. This causes a lot of would-be land investors to overlook a lot of the advantages that land has over traditional real estate investments (e.g. – houses, apartment buildings, commercial properties, etc.). Unlike most residential and commercial buildings, land costs very little to own… no utility payments, no tenant problems, no termite infestations, no leaky faucets, no broken toilets, and if you buy it the way I do, no mortgage payments.
Pros / Cons
Most investors don’t pay much attention to this opportunity because they don’t have patience. People want their money now, they don’t want to wait for decades to realize their gains.
It’s an understandable objection because the land banking strategy does take a long time to implement. It may take decades for the land banking strategy to produce results.
Many investors would rather have their money today rather than many years in the future, and the “waiting game” is arguably the biggest drawback to land banking.
On the same coin, if a real estate investor understands how to identify a growing market and buy properties in the path of growth, the returns can be exponentially higher than many other long-term buy-and-hold investments. Especially in cases where the land is able to produce some amount of cash flow during the holding period (e.g. – by leasing land out to a farmer, hunter, or any other end-user that will pay a monthly lease payment to the owner).
Is Land Banking a Good Investment?
Land banking is something that major developers and retailers have been doing for decades because it happens in every major city in America.
Look at your nearest major metropolitan area and compare how it looks today to what it looked like ten years ago. If a city is growing, there will be a constant new development of residential neighborhoods and commercial subdivisions. New retail establishments are always being created or revitalized, no matter what the real estate market looks like.
All it takes is for an investor to go in and buy land on the outskirts of a city and then they wait for the population to grow to them. They’re buying a property at today’s low prices (before anybody else perceives the value) and waiting until the city grows to them. When this happens, the land prices spike in value and they’re able to cash in on their land investment. MANY multi-millionaires have been created from this one strategy, and you can do it too.