It might be argued that land banking is a type of investment through which one can achieve financial freedom and stability. With the hope of generating returns in the long run, it invests money in financial endeavors and abilities. You can invest your money in several different ways to increase its value, both low-risk and high-risk.
Land banking is one of the low-risk investment strategies with large potential profits.
Because vacant land doesn’t sound fascinating, the majority of new investors overlook it. This has led a lot of would-be land investors to ignore several benefits that purchasing land provides over conventional real estate investments, such as buying homes, apartments, commercial properties, etc.
The land is much less expensive to purchase than most homes and businesses since it doesn’t require maintenance such as paying utilities, dealing with tenants, termite infestations, fixing leaky faucets, or fixing toilets.
Read Also: What is an Assignment in Real Estate?
What Is Land Banking?
One of the first real estate practices is land banking. It is a method of investing whereby investors purchase little or large amounts of undeveloped property to resell it for a profit. Simply said, it involves purchasing land in less developed areas and then waiting for such areas to experience infrastructure and population growth, which will raise the price of the land.
As much as land banking is profitable, it also has risks. We’ll be looking into that aspect in the next section.
What Risks Are Involved In Land Banking?
The major risks involved in land banking are:
- Particularly in developing nations, certain government policies may be enacted that could hinder development in the region where the land is located and have an influence on the resale value.
- Environmental problems like erosion and flooding can occur in the area where the land is located. The value of the land could decrease as a result. Additionally, the property can become too wet to construct on, and fixing it might cost more than the land’s capital and profit put together, rendering it unsellable.
- Land grabbing is an issue in some nations. This group of persons poses as landowners and sells a certain plot of land to various buyers. This results in legal action, and the engagement of attorneys, and may even result in expenses that outweigh the prospective gains. Additionally, the cases typically require more time to solve.
What Can One Do To Avoid These Risks?
- Contact a lawyer to do the research: To prevent awkward situations during land banking, hire a lawyer to investigate the legality of the property and make sure that there are contracts and legal documents to support the property.
- Purchase land in dry areas: Refrain from purchasing swampy land if at all possible to save money on the expense of renovation and repair.
Compare how your nearby big metro region appears now to how it did ten years ago by taking a peek at it. It has grown, and in the coming years, so will the new territories. A very intelligent investment strategy is land banking. The only thing you need is patience to wait for the land’s price to rise.