Land Banking And Why You should Consider This Investment Option
The term “land banking” implies almost exactly what it is. Rather than putting cash into a savings account (where it will earn a maximum of 1% interest every year) or the stock market (which has become increasingly unpredictable in recent years), some entrepreneurs have taken an alternative approach by acquiring 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 new 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.Think about it… you can buy a piece of vacant land today, walk away from it for ten years and when you come back, nothing will have changed. Can you think of a safer investment?
And think about the economics of land… this is a resource with a supply that is always going down (after all, they aren’t making any more of it) and a demand that is constantly on the rise. Given the value proposition that comes with owning land, I often find myself scratching my head and wondering “Why aren’t more investors involved with this??”
The Pros and Cons of Land Banking
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 (if it produces results at all).
In the same way that any investing strategy comes with its fair share of risk and uncertainty, these issues are compounded by the amount of time required for the land banking strategy to work. 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 Nigeria.
Look at your nearest major 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.