Property investors have two main property related goals when they embark upon their property journey:
- To buy and hold a property to create passive income and capital growth
- To buy and flip (buy-to-sell) and make short term gains
Both of these strategies are proven time tested models which have created a lot of wealth for property investors over the years.
But out of the multiple streams of property income strategies which are out there, one of the most overlooked and underused long-term holding strategy is ‘land banking’.
So what is the land banking strategy?
Quite simply, think of this strategy as somewhere where investors park their money. In the real world, people will deposit their money into a savings account, ISA’s, the stock market and earn some kind of interest.
However, savvy investors have taken an alternative approach by acquiring land, and by doing so have chosen to ‘bank’ their cash in a tangible and fixed asset.
The benefits:
- Land cannot be broken
- Land cannot be stolen
- Land cannot be destroyed
You see, for the majority of the time this “land banking” strategy gets ignored or not used, because if we are really honest, how sexy or exciting does it sound that you purchased some piece of land – not very!
But here’s the thing – by ignoring this strategy you are typically dismissing the many advantages that purchasing land has over traditional buy to let.
Unlike single lets, HMO’s or even commercial premises, land is very cheap. There are no tenant problems, no late payments, no maintenance issues, and no broken toilets that you have to fix!
Think about that for a second…you purchase a piece of vacant land today, do virtually nothing to it for 10-15 years and when you come to sell it, you will have made a huge profit..virtually risk free (without all of the hassle in the middle)
OK there’s a little more to it than that, but hopefully you can see the potential in adopting this land-banking strategy..
And the beauty of economics and land is this is a sacred piece of real estate where supply is diminishing year upon year and yet where demand is on the rise.
Given this basic value proposition and the bridge between supply and demand, we often find ourselves wondering why more investors don’t get involved with this strategy.
Coupled with the fact that once you obtain planning permission on a site its value can multiply many times over there is some serious money to be made here.
This is nothing new
As explained in my last editorial, successful underground investors have been using this model for over 400 years. If you’ve not heard of John Astor, he was one of the first multi-millionaires who realised the potential of this strategy when he purchased large strips of land, which is otherwise known as “Manhattan” today.
You see, he bought the land when no-one else realised what the massive potential this could have in future years. Upon his death, his net worth would have been equivalent to over $110 billion!
So why is Land Banking often overlooked?
Well it’s not in essence, as many of the large housing developers buy land to build new build properties. But you don’t get to hear about them as ‘it’s been done’ for decades.
The other issue is most investors don’t have the patience to wait, as they want their money now and rather than wait between 10-15 years to let the capital appreciation kick in (but you can always sell once planning permission gets approved, right?)
I suppose you could, but it’s also a good idea to plan and think long term about your retirement.
Do you have any fall backs? Do you have any other assets that will see you into the sunset?
What will the property landscape look like in 10, 20 or even 30 years from now, will you kick yourself about all the decisions you didn’t make TODAY to make the most out of your future?
What’s the best way to get started land banking?
As touched upon above, this is something all the major home builders, Barratt, Persimmon, Cala and Taylor Wimpey (to mention a few) have been doing for a very long time.
Just have a little think about your local area…can see all the new homes which are all popping up from somewhere? Just compare the site now, to what it was like a few years ago or even 10 years ago – you will have seen all the new estates which sprang up.
Old commercial sites, vacant land, disused parks and old petrol stations are all being revitalized into something commercially better for existing towns and cities.
And the winner…of course is the land owner. You see, it doesn’t take much to buy a piece of land today (at a low price) to get planning permission and sell, or buy, hold, wait for the population to grow, let the demand set in and cash-in as the land value spikes due to overwhelming demand.
But here’s an idea
Look for areas where there is enough space to build flats or houses or larger sites which are ripe for development. They exist in every town and city in the UK, BUT are overlooked by the 99% of property investors who are in this game for fast gain, fast cash and only buy BMV-high-yielding-HMO’s-Fast-Flip-deals!
If you have another 30-40 years in the tank (I’m guessing you do) and time is on your side, this is a strategy you should be active in, as many multi-millionaires have been created from this very property strategy, and so can you.
Stay tuned for the next in the series of land-banking.
