The process of land banking is simple and it involves securing property development sites for the future by purchasing them at current price. You will come across several land development companies that buy large tracts of land and make them a part of their ‘land bank’. After some time, these lands are rezoned after the necessary infrastructure and roads are put in and then sold as individual lots instead. However, the million-dollar question is whether land banking is an effective investment strategy or not. Let’s go over the factors which affect the answer:
The value of the land you have purchased will appreciate regardless of the developments being made. However, it would be a good idea to make sure you invest in a property close to its land value. Not only is it a smart strategy but it also offers numerous benefits in the long run.
If you are part of a ‘soft’ market, you should consider securing your potential real investment properties. During these times, completing a project may not be as profitable which is why investing in multiple properties is better, as long as you get them at a good price. Eventually, the market will move on and the combination of owning a block of land, located in a prime location and a stronger market will allow you to enjoy substantial profits.
If you acquire property development approvals, you can work towards enhancing the value of the property. Whether it is an approval for apartments, townhouses or multiple dwellings, by overcoming the council approval process, you can eliminate one of the property development risk factors, making them more attractive for buyers.
So, as long as you play your cards right and make smart decisions, you will achieve success with land banking, making it an effective investment strategy.