Land banking refers to the keeping of land for future sale or development. In this post, we discuss land banking and keeping land for future use, especially for purposes of using it as an investment and selling it at much higher price than its current value. There are numerous advantages that are associated with this area of real estate.
One of the most renowned advantages of land banking is the fact that it enables land owners to generate profit from the sale of their land. If you own a piece of land that is likely to be useful in the future, you can keep that land and sell it at a time when its value has risen. In this way, you will be able to generate more profit from the sale of your land.
Sometimes land banking can enable you to sell a piece of land at a price that is far higher than its current value. This usually happens if the land is likely to be more costly in the future. Many land owners have benefited greatly from the sale of land at prices based on future price projections.
There are times when land becomes scarce or very expensive. However, you can buy a certain piece of land at a very low price and still develop it many years later. While your colleagues will be searching for cheaper pieces of land, you will be enjoying a piece of land that has the ability to appreciate.
Trust deed investments are nothing new. In fact they have existed for a long time, yet many prospective investors do not know much about them. In essence they are just like mortgages except for one difference: Apart from a borrower and a lender there is a third party involved – an investor.
Nowadays and in the current economic climate, trust deed investments help many mortgage borrowers who are in need of bridge loans. Mortgage brokers who partner with third party lenders are able to assist with a loan and it is part of their job to explain all associated risks.
Trust deed loans can bring above the average profits but only if all risks have been calculated and adjusted to the particular client’s needs. Hence a broker would have to ensure that the client’s future plans and financial resources are compatible with the financial risks involved.
Ever since the recession has hit the market such investments have created losses with similar percentages. Such losses were worsened in the past five years by brokers who failed to risk assess and inform their clients properly and offered inappropriate trust deed loans.
Today the dislocation capital markets means that many commercial banks are not equipped to provide bridge loans on strong collateral, even to customers who would have qualified previously. As such, investors can now provide private loans secured by quality collateral to strong borrowers with less risk than afforded previously.
Trust deeds, also referred to as deeds of trust or notes, are deeds whereby the legal title of real estate property is transferred to a trustee. This individual holds the deed as a form of security for a loan secured between the borrower and lender. In other words, trust deeds are formal documents that outline terms of a trust agreement and serve as additional security.
With trust deeds, the official property title is maintained by the trustee until the loan on the property is paid in full. Although the trustee is not involved with the agreement between the borrower and lender, this person is responsible holding the note unless the borrower defaults on the loan, at which time the trustee has the legal right to sell the property.
Certain steps are taken in setting up deed trusts, including:
- Real estate purchases are typically structured so the lender provides the borrower with money to buy the property.
- In exchange for paying the seller, the buyer receives a grant deed for the property.
- Immediately, the borrower executes a trust deed whereby the property is given to the trustee to be held in a trust until the loan between the borrower and lender is paid.
An escrow holder is always used when dealing with deeds of trust to ensure the transaction will not close until the funds, grant deed, and trust deed are handed over. With that, the transaction can be rolled back if for any reason one of the parties involved cannot complete his or her end of the deal.
Trust deeds are different from mortgages since the deed always involves a minimum of three parties: the borrower, lender, and trustee. The legal title for a mortgage goes to the mortgage company, whereas for a deed of trust, it goes to the trustee. In both scenarios, the borrower retains the equitable title. While there are distinct differences between mortgages and trust deeds, essentially, they are both security instruments.
The buy and hold strategy is a great means to accomplish the goal of yielding returns and creating cashflow. It also provides the opportunity for you to be a landlord. The concept of a buy and hold strategy is that an individual purchases a real estate asset, such as a residential property, and doesn’t sell it, but rents it generate monthly cashflow.
In the pursuit of a buy and hold strategy, one of the main decisions to consider is to whether or not to utilize leverage. More properties can be invested from the distribution of your investment capital by funding your purchases. At the same time, a risk is more diversified and total returns will be increased in a market situation in which the value of an asset is increasing over time. Paying for the property in full reduces losses in a depreciating market. Returns will also be increased in a flat market because income isn’t going towards interest payments.
One of the advantage in the practice of a buy and hold strategy is the acquisition of tax benefits wherein the tax rate imposed to a long-term profit is zero. This occurs if the total of your income and profits position you between the 10-15% tax brackets. Another advantage derived from this strategy is protection from inflation, which means that as inflation increases, so does the rent for your property. This helps to generate added cashflow as you hold your property for rent. However, the risk of adopting this strategy is the possible incurrence of expenses in managing with tenants who cannot pay their rents as due.
IRA stands for Individual Retirement Arrangement, which is more popularly known as an Individual Retirement Account. This allows persons to save money for retirement. The word “self-directed” easily implies that you, as the personal account holder, have full power over choosing and commanding your personal retirement account investments. The investment to real estate may be possible under a self-directed account, since you are able to use your retirement funds to invest in alternative assets through this type of account.
Nicknames are provided to self-directed IRAs that invest in particular assets, for instance, a self-directed IRA holding a real estate property is called a Real Estate IRA. It is required that a competent trustee acts as a proxy to hold the IRA account of the IRA owner under the rules of the Internal Revenue Service (IRS). Self-directed IRA trustees are qualified to manage the increased complications of documentation needed for transactions engaged in alternative investments.
A self-directed IRA allows you to diversify your investment into several different investment assets, such as real property, mortgages notes, and foreign currencies. You can invest in any of these assets, and others, through the use of your self-directed IRA.
There are also tax advantages obtained from self-directed IRAs. This is because no tax is imposed to investments under this account which could mean an acquisition of higher profits. Mix this benefit with the capability to actually diversify and invest in a variety of assets, and you could have a winning combination for a higher return.
Disclaimer: The Company introduces general information and education concepts about self-directed retirement accounts (such as 401(k) and IRA accounts). Like any investment, there is risk in using retirement funds for investing in real estate assets. It is possible to lose a portion or all of an investment in real estate – including those purchased with retirement funds. Please review IRS Publication 3125 regarding the use of retirement funds for alternative investments. The document can be found at: http://www.irs.gov/pub/irs-pdf/p3125.pdf. Every individual is different, with unique circumstances. We do not offer tax, accounting, financial or legal advice. Prior to acting upon this information, you may consult your own accounting, legal and financial advisors to evaluate the risks, consequences and suitability of that transaction. The Company is not a retirement account custodian, trustee, or securities dealer.
Real estate provides a valuable option for those looking to invest. This can be attributed to the fact that it is associated with many advantages. But, like any other investment, you have to be cautious when venturing into real estate. As much as it is advantageous to invest, there are numerous challenges that you may encounter. You may fail to edge past those challenges if you are not properly informed. This post highlights some important tips for first time property investors.
First of all, seek audience with a reliable property investment educator. There are many business experts that can give you reliable advice on how to realize your idea to invest in real estate. Real estate educators can give you technical advice on the current assets that can enable you to generate more profit. They can even help you to have a clear picture of the current market. Such information will help you to make good investment decisions.
Property evaluation is also very important. When you are buying a property, you need to evaluate it based on certain attributes associated with it. For example, you can evaluate a certain piece of land before you buy to determine whether or not it’s going to be an asset that creates cashflow. This will enable you to know whether you are actually spending more than you need to be.
The use of multiple strategies is effective in real estate investing. Depending on the goals that you want to achieve, you can manipulate the buy and hold strategy as well as the banking strategy. When you do land banking, you can sell it at higher prices based on the hope that its value will rise in future. In the case of holding, you can hold on to land for many years and only sell it when its value has risen.
A trust deed is a formal arrangement between the lender and the borrower to allow the borrower to pay back the fraction of the debt that you can afford. Trust deeds are legal arrangements that can prove to be very important. One notable reason why they are important is the fact that they can enable highly indebted borrowers to regain financial stability. The time frame for a trust deed is determined by the lender after formal negotiations with the borrower. During this period of time, the debtor will be able to regain financial stability because one will only be required to remit payments that one can manage.
Every trust deed is associated with its specific validity period. A trust deed will be honoured for as long as its validity time frame has not elapsed. Under normal circumstances, the minimum validity period of a trust deed is 4 years. During this period, the borrower will be required to make monthly payments as stipulated by the trust deed. The borrower and the lender agree on a specific amount of money that is supposed to be remitted on a monthly basis until the debt has been cleared in full.
Sometimes extensions are possible if the borrower fails to meet the stipulations of the previous trust deed. New stipulations may be laid out or the same stipulations may be maintained until the borrower has liquidated the outstanding balance of the debt.
But, there are certain penalties that may be slapped on the debtor should one fail to clear the outstanding debts. The debtor may have difficulty getting into a similar agreement in future, so it is important to remain up to date with the expectations set on a trust deed.
Real estate investing is fast-paced. To benefit in today’s market, investors need to act as fast as they can, because they’re not the only ones out looking for deals. Due to the time constraints faced by real estate investors, it is recommended to establish goals and develop a strategic plan prior to the purchase, sale, or rent of your own assets.
To establish strategic goals, personal research is required. The locations where you wish to invest must be studied thoroughly with the use of public property records. Also, network with other investors while attending property auctions. By attending these events, you may learn about the trends and potential markets that are useful for property investment decisions. Based from all the research you have gathered from all the activities stated beforehand, you can further your own investment plan and goals. Also, you can already determine your own niche, like rehabbing, or creating an income property.
To set goals for profit, you need to estimate your target annual profit from your property investments. Next, you can approximate the average potential profit from every real estate asset in one year. Finally, you can divide your wanted profit by the average profit per real estate to approximate the least number of real estate you must search and administer annually to accomplish the profit goal.
Compared to some investment assets, residential real estate properties focus on personal use rather than commercial. There are several categories of residential real estate, including connected/multi-unit residences, semi-detached residences, single-family detached homes, and portable residences. Connected/multi-unit residences include apartments, condominiums, and multi-family homes. An apartment is a single unit included in a multi-unit complex, with a condominium being similar. The common areas built inside the complex are occupied and possessed together. A multi-family house is usually viewed as a multi-story structure with separate units.
A duplex is one example of a semi-detached residence where two units are divided with one wall. However, a single-family detached residence is an independent residential property all together. Examples of portable residences include mobile homes, and houseboats. Mobile homes can function as a full-time residence, but are capable of being moved if and when needed. The point is, there are a variety of different residential real estate forms that can be invested in, and it’s important to know that even as you hone in on the area of real estate that interests you, like residential, it’s still important to look even further into the details to determine which asset within that area is best for your needs as an investor.