24 Aug Land Banking for Beginners
Tired of making property and investment decisions that yield little to no return? Perhaps it’s time to consider land. Assumed to have an unlimited useful life, land does not depreciate, which is one of the reasons why it can be an excellent investment option. Need even more of a reason? Generally, it appreciates even further as the area around it develops. Win!
There are many ways you can generate a profit from a parcel of land. You can improve it through the development of residential or commercial structures for sale or lease. The development itself can attract other forms of investment, which can be tapped for future profits. It could be used for tourism. It could even be rented out for tiny house owners or small co-op farming.
There are loads of options, but if the thought of engaging in the actual development of land in any form doesn’t sit well with you, land banking might be an option worth considering.
What is land banking?
Land banking is the practice of buying land and holding it for sale or future development. This often involves properties that have high appreciation potential, usually at the outskirts of cities and metropolitan areas where there is the opportunity for growth as the population expands.
As the value of the land appreciates, the landowner may decide to sell it or develop it themselves. Their decision will depend entirely on the potential profit the property could generate in relation to its appreciation and, of course, on the local council’s approval for the land’s development.
Landowners may sell the land to a single large investor/developer or sub-divide it into parcels which can then be on-sold to smaller investors or purchasers. If you are an investor, this could be a great opportunity. With a considered investment strategy, engaging in land banking can be a steppingstone to even bigger and more profitable ventures.
Land banking is considered a ‘boring’ investment, it doesn’t come with the daily (sometimes hourly) excitement of the share market, or the pretty glitter of gold.
After the acquisition, it’s really quite hands-off until you decide you want to do something with it.
What are the benefits of land banking
Many investors are attracted to land banking because it is downright a hands-off proposition. The ability to completely avoid the cost of developing and maintaining the property and still potentially make money out of it makes land banking an attractive proposition. Because the properties involved in this kind of strategy are distant from the city centre, they often don’t attract Mum and Dad buyers which helps to keep competition in check. With demand at almost zero, you can expect the price of the land to be a lot lower than those of properties near the city.
What to keep in mind when searching for the right property
This article goes a little deeper into what to look for when purchasing a property for land banking. We’ve summarised the key points below:
- Location. Location. Location.: This should be the starting point for all and any discussions around any property purchase.
- Zoning: What are council’s plans for the area, what are you allowed to do with your block? There is no point purchasing a 10 acre parcel on the outskirts of the city as a land banking holding that you can’t do anything with but farm on it. Check your zoning with council.
- Easements: What are they, where are they, how will they impact your future use of the block?
- Streetscape changes: Who owns the land around you, what are their plans? If the government puts in a new school or hospital, or a developer owns a 100 acre parcel that backs onto your property – what changes will be made to your street? Will it need to be widened? Will traffic lights or a roundabout be installed? These are the things you need to consider.
- Infill sites: Has the land previously been used as a tip of some sort? Were there old farm buildings that were knocked over and built upon? Was the block a former military camp? What’s under the soil that might cause you issues?
- Transport: What transport options are available now? What options are on the horizon with the Government? If you are holding land for the purposes of on-selling it, liveability is your best selling point. Think about the options available for future residents – they are the people buying from the people who are buying from you.
- Local amenity/community hubs: What is available to the community? This could be things like public swimming pools, local libraries, and shopping centres. All the things that make a community liveable.
A few additional points to consider:
- The size, shape and orientation of the block
- Any sizeable trees
- The block topography
- Site accessibility
- Are there existing dwellings? Will they require initial work to make them usable? Will they require ongoing management? Do you really want to have tenants?
How to Engage in Land Banking Strategies
Like all investment structures, land banking comes with its own risks. Your success as an investor depends on your risk appetite, your understanding of the area the land is part of, and how your purchase fits in with your long-term investment strategy.
It is important to be thorough with due diligence and ensure you have spoken with your own professional finance advisers to fully explore the opportunity and understand the risks and rewards.
Once you’ve done the necessary research and are satisfied with your land banking strategy and opportunity – contact us!
IBN Direct sources land development and commercial property funding specific for land banking strategies and can help you obtain the funding that you need in no time.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.