Benefits of Land Banking as a Real Estate Investment Strategy
There are several ways in which you can become a real estate investor. Many
strategies are very mainstream and have thus become popular. But, what
about land banking; have you considered this technique? If you’ve never
heard of “land banking,” you can think of it as a buy-and-hold strategy
in real estate investing.
Land Banking Explained
The name is indicative of the meaning. Investors who employ this strategy buy land, a tangible, fixed asset, then sell when the value and demand has gone up. Although time is a factor, it can be much more lucrative than putting cash into a savings account or the volatile stock market.
Although purchasing land is not the first option new real estate investors consider, it still has many advantages over traditional real estate investments. Land costs almost nothing to own, which differs in comparison to residential and commercial buildings. Property taxes in Mexico are 1/10th of 1%. To give you an example, let’s say you purchase a &200,000 USD piece of land, your annual property taxes will be whopping $200 USD. Land does not require utility payments, there aren’t any tenant or termite problems. There are no kitchen or toilet repairs needed. And if purchased correctly, no mortgage payments either.
Consider for a moment the economics of land. With an ever growing population, and less and less vacant land, supply of land is always going down. Therefore, demand is continually on the rise. Given these facts, it’s a surprise more people aren’t pursuing this investment strategy.
The History of Land Banking
Land banking as an investment strategy has been around for over 500 years. John Jacob Astor became America’s first multi-millionaire using this strategy. He purchased large tracts of land in New York. Today, that area is known as Manhattan. John was one of the few people at the time to see land banking as a great opportunity. If John Astor’s net worth was measured in present day, it would amount to over $100 billion.
Why Isn’t Land Banking Used More?
It all comes down to this one word - patience. Many investors want their money now. Traditional land banking means waiting up to 10, 15, or 20 years to realize gains can be a long time. However, the long-term can be equally as important as the short-term. Retirement, a safety net, and a fallback plan when the stock market crashes are all worth considering.
Thinking about your future, even 20 years down the road can make the difference between retiring early, on time, or not at all. Real estate will look much different 20 plus years from now. What decisions can you make today, to set yourself up nicely for the future?
Among the traditional long term strategy there is also a more aggressive short term process where one would be able to expedite the process by targeting prolific areas that are on the cusp of booming. I will dive further into this strategy in next weeks blog.
How To Start Land Banking
Start by looking at the nearest metropolitan area close to you. I like using Cancun and Playa del Carmen as an example. Compare the area to what it looked like 10 years ago. New neighborhoods and streets are being developed all the time. And that means new commercial developments, major brands, business parks, retail stores, and more. Whether an area is being created or revitalized, there are many opportunities.
You can buy property at low prices because in many areas there is no perceived value for the land yet. Once the city grows, the land will become valuable and worth much, much more. This is the time where you cash in on your investment. Many people have become multi-millionaires using this investment strategy, so why not you too.
When scoping out potential areas, utilize the Google Earth feature to access the
historical satellite imagery. Also, look for areas that are expected to continue growing. Try it out with Playa del Carmen.
Nearly every metropolitan area has these opportunities available, it just takes a keen eye and an investor with some patience. Land banking is often overlooked by the majority of real estate investors because they focus on investments that can make them quick cash. However, all you need is a bit of time on your side, to reap the benefits of this strategy.
Until next time, Adios!