Land banking – the property development strategy of the pros
How many times have you driven past a property and said to yourself, “If only I had bought that property when it was for sale five years ago?”
Who wouldn’t have bought more properties 10 years ago if they knew they would have doubled in value, like many well located real estate has done over the last decade?
Fast forward five years from now – would you like to own a property development site that cost you much less than its current price?
Well maybe you should consider Land Banking – a strategy used by many professional property developers.
How Does Land Banking Work?
Land Banking is simply the process of securing future property development sites today, at the current price.
Many large property development companies buy Greenfield sites, farms or large tracts of land and put them in their “land bank” to ensure they have a sufficient stock of land for future property developments. Over time they rezone the land, put in the necessary roads and infrastructure, undertake a subdivision and on-sell the individual lots.
While holding a bank or stockpile of land has helped many developers make big profits in a rising market, it has also been the downfall of a number prominent developers when real estate values slumped, or rising interest rates blew out holding costs.
Land banking is a great strategy for smaller property developers too. It’s an approach I’ve used successfully for the last few decades because I’ve learned to keep my holding costs to a minimum so they don’t break the bank.
You see…I don’t buy vacant blocks of land.
I buy old houses close to their “use by date” on well located blocks of land, with property development potential in top suburbs. While the rent I receive partially offsets my holding costs, I add value to my site by obtaining property development approval (D.A) and then over time, proceeding with the property development.
Why is Land Banking a good investment strategy?
Many investors have made small fortunes by land banking because they are able to use a number of different property wealth accelerators that, when combined, generate substantial profits:-
1. Land appreciates – we all know that it’s the land component of your property investment that appreciates, so buying a property close to its land value can be a smart strategy.