I always felt very secure and very safe with real estate. Real estate always appreciates. – Ivana Trump
Simply stated, Land Banking is the process of buying pre-developed parcels of land, holding the land and then selling the land in the future for a significant profit. Verified by historical facts and research, ideal Land Banking parcels should be identified and purchased in future major metropolitan growth corridors before the new development actually occurs.
Purchased land is banked until there is a substantial increase in value. Land value typically increases as the result of rezoning, population growth or municipal expansion. The Land Banking process does not include making improvements to the land. Most Land Bankers sell the land to commercial or residential developers who make improvements to the land.
Organizations engage in Land Banking for a number of reasons: federal, state and local governments purchase land for preservation or to prepare for future land needs; universities and non-profit entities purchase land for future growth or expansion; and businesses leverage Land Banking to gain strategic or competitive advantage by retaining development control in critical areas. Many organizations have an experienced in-house acquisition staff who research and select land parcels that meet their specific objectives.
The Land Banking Institute is uniquely committed to the individual Land Banker—with the goal of helping individuals to successfully utilize Land Banking as a component of their overall investment strategies. Land Banking provides individuals with a safe, secure alternative to the stock market:
A Tangible Asset
Land is real property and has a defined tangible asset value most often protected by a deed. Comprehending the variables that go into understanding the true value of shares or bonds is often elusive to even the most experienced investor, especially in turbulent economic times. Land has a historical performance as a stable and reliable investment. Your principle is seldom at risk.
Land as a Commodity
Increasing populations and sprawling cities make land a hot commodity around the world. Hungry corporations and developers purchase open real estate for future commercial, retail and residential use. This continued projected growth makes land a high-return investment when value spikes on the leading edge of the development.
Value Determined by Use
The value of land is determined by its use. Land Banking is a calculated assessment that a plot of land will be worth more in the future as the market pressures for its use increase. Unimproved land which is not accessible via major transportation grids and/or not zoned for commercial or residential development is worth significantly less than land located next to the interstate and zoned for commercial retail. As roads are built and zoning is changed, the value of the land grows. LBI guides Land Bankers to ensure they more accurately calculate the path of development and its impact on the value of the land.
In the Path of Development
Land Bankers use their understanding of the development and growth path to purchase land that will be developed in the future. They study demographic patterns, transportation funding, geographic limitations, and civic leadership to assess where and when that land will be needed by competitive developers. Banking or holding land in this development path is where Land Banking potentially delivers the highest return on the investment.
The global economy requires global investments. The demographic and economic pressures that drive the value of land in the United States are the same around the world. Paths of development are driving up land values worldwide near every major city. Successfully banking the land – purchasing, holding, and selling – is imminently possible with applied research, knowledge and access.
An Investment Strategy
There is many reasons why individuals, businesses or government agencies engage in land banking. For individuals it can be a critical strategy to achieving their overall investment and wealth building goals. Read more to learn how land banking is used as a retirement strategy, funding a college education or as a legacy building strategy.