Land Banking – Approach with the focus on ROI, not personal hobby or interest

LAND BANKING is the investment strategy of acquiring selected pre-developed land in the growth path of a major metropolitan center, and wait for its value to mature, then sell it for a significant profit in the future.
However in reality, when people purchase their land, they are almost always influenced to a degree by their personal interests or hobbies. Those people may ignore their initial land banking purpose, i.e. the Return of Investment (ROI) when selecting land to purchase. Some people have a dream to own a farm, therefore they bought their land to grow crops far from the major metropolitan, hence away from the growth path; some people love to have an ocean view, hence the land bought is near the ocean, but that area will have a very low population growth because of the distance away from a metropolitan.
Where should someone invest then? This is a common question with the only answer, “Good Location”. Good Location doesn’t merely mean the place with beautiful countryside or ocean view. Good location means to be able to sell the land for a significant profit in the future.
Case Study:
In 2001, Ms. Chang spent $450,000 on a parcel of land in Albion, California. By December 2013, the appraiser gave the land value was still $450,000. The land price has not increased since 2001. Considering the factor of inflation, we can make such conclusion that this investment generated negative return. The main reason is the weak population growth and far from the metropolitan center. The county population statistic shows that there are only 168 local residents who live that area within 20 miles in 2010; it takes almost 2 hours to the nearest town, Santa Rosa. Although the parcel is located in the natural beauty near HWY 1, one should never invest in such land because of low return.




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