Land banking is the process of purchasing raw land and holding it for future development. When done correctly, this can be very profitable. However, here are some things you need to know about land banking.
What is Land Banking?
Land banking is the purchase of raw land for future development. In this case, it’s usually undeveloped and may not have any infrastructure, such as roads, water, or power. The intention is to hold the land until it appreciates in value, then sell it at profit.
Why Should You Bank Land?
There are many reasons to bank land. Here are a few of them:
- Banks are always looking for safe investments that will appreciate over time. Raw land meets this criterion, since it cannot be reproduced and there’s a limited supply.
- Banks can offer loans for the purchase of raw land. This means you can afford to buy the land without needing to put your own money in upfront.
- Raw land usually appreciates in value over time. This can be due to factors such as inflation, population growth, or zoning law changes.
- Raw land can be turned over very quickly, if necessary. If you need to raise cash quickly, selling raw land is usually easier than developed property.
- Raw land can be used as loan collateral. This means you can use the land to get a loan, even if you don’t own the property outright.
How Do You Get Started in Land Banking?
The first step is to find raw land suitable for banking. These are usually undeveloped and in either a growing area, or one with potential for growth. Try to find land with good access to roads, water, and power.
Once you have found a suitable piece of land, the next step is to negotiate a purchase price with the seller. Get the best price possible at this stage, since this will impact your profits when you eventually sell.
After the purchase price has been agreed upon, the next step is obtaining financing, if necessary. You can do this by going to your local bank or credit union and applying for a loan.
Once you have obtained financing and closed on the land, your next step is to hold onto it until it appreciates in value. Be aware that this could take years or even decades, depending on market conditions.
Land banking can be a great way to invest in real estate without developing immediately. By understanding what it is and how it works, you’ll be in a better position to take advantage of this investment strategy.
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