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Kevin Kaaha,  in Los Gatos, CA

Does anyone know what Land Banking is?

Asked by Kevin Kaaha, Los Gatos, CA Wed Nov 11, 2009

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Land Banking is the proven wealth building strategy of acquiring pre-developed land in the growth path of a major metropolitan center; waiting for its value to mature, and then selling it for a significant profit.

Advantages of Land Banking

Land Banking is Smart, Simple and Secure. If you follow the definition of Land Banking as the strategy of acquiring pre-developed land in the growth path of a major metropolitan area, and holding (or banking it) to sell for significant profit in the future, your risk is very low and your potential for return has been proven to be historically very high.

The risk is very low, because you receive a grant deed, fee simple title with insurance when you purchase a parcel of land for Land Banking. I recommend only purchasing land with cash or self-directed retirement, HSA or educational funds. Borrowing money for to purchase land is not Land Banking—it then becomes “Land Speculating”.

The key words to yielding high returns are “acquiring pre-developed land”. Pre-developed land is:

An area that has already been Targeted for Growth,
Located in the Growth Path of a Major Metro Area,
Has a diversified economy,
Jobs and affordable housing; and
It has all 10 Key Land Banking Indicators below:

1) Land is usable and relatively level.
2) There are abundant resources in the area.
3) The area is easy to reach by car, train or plane.
4) Utilities are in place to accommodate rapid growth.
5) Close to an ever-expanding major metropolitan area.
6) Current industries and commercial base is growing.
7) Existing residential development and low cost housing.
8) Higher education institutions nearby and more planned.
9) Regional studies projecting healthy population growth.
10) Master plan for streets, roads, sewer, electric and gas.

We have all heard the saying that “most millionaires in America made their fortune in real estate”. That is a partially correct statement— the truth is that most multi-millionaires actually made it by Land Banking. Land Banking has been used effectively since the 10th Century to protect and build family wealth.

This wealth building strategy has been used because Land Banking has and continues to be basically immune to economic cycles. While the value of both residential and commercial properties have been hit hard over the past couple of years, properly selected pre-developed land has remained steadfast and in most cases increasing in value.

Risks of Land Banking

The risks associated with Land Banking if practiced as intended a long-term appreciation strategy, the risks are very, very low. However there are some risks that should be taken into consideration prior to making a purchase:

Land Banking is not a readily liquid investment. I suggest that you plan ahead as to when you may need to sell your parcel of land. It may take 6 to 12 months to sell a piece a property for its full value.
Since your purchasing pre-developed land, often without zoning or entitlements in place; cities, counties and planning commissions can modify master plans or create on foreseen obstacles—potentially decreasing the value of your property.

High property taxes can impact your cash flow and reduce your return on investment. Make sure your Land Banking in an area that has historically has had low taxes assesses on undeveloped or predeveloped land.
Like any investment strategy, diversifying your portfolio over multiple items hedges your opportunity for loss or benefit. I suggest, resource permitting, that you purchase two or three parcels in different areas.

There is no such thing as a perfect investment, but Land Banking does have one key advantage over most others which is best expressed by Mark Twain “Buy land, there not making it anymore”.
1 vote Thank Flag Link Wed Nov 11, 2009
Hello Kevin,
The subject of Land Banking just came up in Cleveland, where there are loads of abandoned homes in the downtown area. The homes would not benefit from repair funds....in truth they are just too far gone. The city is deciding about a land bank issue . They would end up with the property (home& land), raze the structure, and keep the land for a future project that benefits the area. Either selling land to developers down the road, or whatever the city planners come up with to benefit the neighborhood.

Obviously there a a lot of legal issues associated with this type of "taking", but most of us would agree that the boarded up, burnt out, crack houses would be better off missing from our city's landscape. Time to generate new neighborhoods, new hope, and jobs!
0 votes Thank Flag Link Thu Nov 12, 2009
Land banking is the practice of purchasing raw land with the intent to hold on to it until such a time as it is profitable to sell it on to others for more than was initially paid. Land is popular as an investment as it is a tangible asset as opposed to shares or bonds.

The intended increase in value may come from inflation, conversion for use as housing, or potential for extraction of raw materials.

Typically parcels of land desirable for land banking are those that lie directly in the growth path of rapidly developing cities. The initial goal is to buy undeveloped land that will increase in value because it lies in the path of urban growth. The investment objective is to identify these parcels well in advance of the developers and wait for the value to be realised.

Taken from Wikipedia

I thought this is what it might be but looked it up.
0 votes Thank Flag Link Wed Nov 11, 2009
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