Land Banking : Top Real Estate Investment Strategies In Nigeria

6 min read



Land banking: why you should invest in it

For a long time, real estate investments have been a thing for those in the top position (the rich), financially adequate, and good in brains with money until the market was modified and more real estate investment opportunities opened up to anyone and everyone—from rich people to those in the middle class. Because people believe that being a profitable property investor should be a far-fetched idea,

So many people are out there looking for several investment opportunities to invest their money. One of the many investment opportunities in Nigeria with great ROI is the real estate sector because land never depreciates.

This article will enlighten you on the many benefits you gain from investing in land banking. if you need an invoicing system, you can try Zintego for free invoicing templates

What is land banking?

If you are considering land banking for the first time, you probably have one question: what is it? And closely followed by, “should I invest in it?”

Land banking is a real estate investment scheme that involves buying undeveloped land at a reduced price with the goal of holding it for a while and selling it for profit at a future date when the price appreciates.

Investors acquire land by tracking locations that are best for investment based on social infrastructure and demographic factors (population).

Land investors buy lands, wait for the land’s value to appreciate, and then sell the same to other interested parties for a substantial profit.

How does land banking work?

Many large real estate development companies in Nigeria engage in land banking. These companies buy undeveloped land, farms, and other greenfield sites after thoroughly researching locations prone to quick appreciation and development to add to their existing portfolios.

 These portfolios can be considered as their “bank”. This practice enables developers to have a ready stock of land for any future property developments.

These land banking investment companies help investors put their funds into purchasing undeveloped lands from their land banks; investors hold them for a while, intending to resell them at higher prices for maximum profit. 

It is important to note that land banking is an investment strategy open to large property development companies and can be done by smaller private investors. The only difference is that smaller investors would acquire smaller parcels of land due to obvious capital constraints.

How Much Money Can I Make By Investing in Land Banking?

While regular banking investments offer very low-interest rates, land banking investments have created an opportunity for you to earn as much as 35% returns on your investment within a year.  

Some land banking investment companies even create an avenue for ROI to be 45%. The lowest interest rate you can ever get on your investment is 15%.

10 Reasons Why You Should Invest in Land Banking

#1: Appreciation of the land’s value

Land banking is a good investment strategy to the extent that the value keeps increasing; this is true globally. The cost of acquiring land, as observed, always goes up and hardly ever comes down.

The land is one of the assets that has the potential to appreciate over a longer period, so investing in land with high development potential at the current or lower market value ensures maximum returns to the investor. 

#2: Value addition

You can make improvements to the land that will make it more valuable. Value addition to the site is possible by obtaining property development approvals and then, over time, proceeding with property development. 

Value addition makes the land more attractive for developers, who may be willing to pay a premium for it. Alternatively, the land banker may opt for financing and continue with property development.

#3: Minimal start-up capital

Untapped, vacant land is generally the cheapest type of real estate to be found. It’s not until expansion and development occur that property increases in value.

Hence, if you know where to look for great deals on land, it requires minimal start-up capital to get your business up and running. It’s a type of investment that doesn’t necessarily require you to have millions of naira. 

#4: Seller Financing Can Increase Your Income Potential

Seller financing is essentially the same as “lending money” to the person buying your property. But instead of advancing money to the borrower, you simply allow them to use your land permanently, and you accept payments for it in the form of cash over several months or years in the future. 

When you, as an investor, combine the power of seller financing with your vacant land, it can open doors to many more buyers. Due to the scarcity of “easy money” financing for vacant land properties, land investors can use this to their advantage by charging a higher-than-market interest rate, and many people will gladly pay it.

When you sell your land this way, you will get 100% of your initial investment back almost immediately (the first few months after loan closing), and the remaining payments you receive for the loan’s remaining term are pure profit.

#5: Land is cheaper to own as a long-term investment.

The land is relatively abundant and thus cheap in some developing parts of the country, like Ibeju Lekki (Lagos State), Akute (Ogun State), and Mpape (Abuja). As an intelligent investor, buying this vacant land offers you a more accessible and affordable way into the real estate market.  

When you buy a piece of land for the right price, land banking can be the investment you use to keep your money stored somewhere for a while.

Your asset sits quietly in the background, costing you almost nothing and silently increasing in value.

#6: Undeveloped Land is a Hands-Off Investment

The land is easier to manage than built-up properties that require being kept in reasonable condition: no utility fees, no tenant problems, etc. dealing with problems like leaking roofs, burst pipes, and other hundred issues with owning buildings.

Vacant land doesn’t involve any of those things. Once you buy it, it sits there, and nothing happens. No stress!

#7: Generate Remarkable Income Before You Sell

Land can generate income while waiting for future economic development.

A great example is leasing it out.

Land in a rural farming area can give the land investor an exciting income stream when the investor charges land rent for the farmland, which will be used for agricultural purposes by the renter (if it’s fertile land).

You may also be able to harvest the trees by logging your vacant land with woodlands. 

You can also sell mineral rights to designate who can profit from the resources on the land. This can generate an income stream while you sit on the ground.

#8: Lower competition

There’s low competition in this real estate investment niche. Most people (especially those with a lot of investment capital) are focused on the shiny and glamorous aspects of real estate investment—condo buildings, developments, house flipping, and multi-units. It’s not their fault; almost everyone is focused there.

If you are looking to buy undeveloped land, then a significant advantage is the smaller competition you will face.

You can find the land that meets your criteria in no time, and you can still negotiate to get a better deal.

#9: Subdivide for Land Sales

Another way investors can make money off their land banking investment is by subdividing their lands for sales. Investors can increase the total land value of their investment by separating it into smaller lots and selling them individually to buyers. 

In many cases, the subdivided land can be more valuable than the whole. This is due to marketability and the fact that it might be easier to find a buyer for a smaller, more affordable parcel of land than one large lot.

The subdivision process of raw land consists of two parts: mapping and legal documentation. The mapping aspect refers to the proposed subdivision area and how it should be defined. At the same time, the legal documentation involves submitting the proposed subdivision, which generally includes an application and fee, to the local county. If they approve the application, the county records will record the subdivision mapping.

#10: It is a finite asset

One of the biggest reasons you should invest in land is that it is a finite resource. New residential high-rises will continue to be built, but only a limited amount of land is available for ownership. 

Because of this, owners can be sure that their investment will constantly be in demand, so its price will continue to appreciate.

Investing in a plot of land is undoubtedly one of the best options for individuals looking to gain high returns with minimal risk. 

Why is land banking a better investment opportunity than other forms of investment?

  1. Land is a safe investment that will always be in demand for one reason or another.

  2. The land is very inexpensive to own as a long-term investment; the investment could be made according to your financial capacity.

  3. You can increase your returns quickly.

  4. This type of investment has a low tax rate; if your investment property is sold after a year, the gain is subject to capital gains tax rates. Your tax bracket is generally 15% or 20%, which is usually less than your tax bracket.

  5. Real estate coincides with retirement; when real estate is purchased, the cash flow is lower, but over time, it yields a higher income, which is a perfect investment for retirement.

  6. There will always be value in your land. Other investments can leave you with little to no tangible asset value, such as a stock that can dip to zero or a new car that decreases in value over time. 

Final thoughts

Research has shown that land banking investment is without question one of the best investment schemes to go into. 

It comes with a guarantee of great profit returns over the course of five years. This is assured because it has proven to be one of the most profitable short- or long-term businesses.

With regards to real estate investing, investors often utilize only one of two strategies:

  • Buying a property and flipping it quickly
  • Buying a property to bring in passive income: rental yield

Land banking is a great alternative investment strategy, specifically for investors who want to invest, wait, and forget.

After thorough research on locations prone to quick appreciation and development, these investors put their funds into any land banking investment; it is necessary to be conversant with essential highlights like how to spot a good investment opportunity, when to buy land, when to sell, when to develop, etc. 

For example, if you plan to invest, you should confine your investments to those stocks and shares that you will be happy to own for at least ten years.

 Suppose that you now decide to go into land banking investment. In that case, a buyer’s market can be a great time to invest in real estate (land banking investment) because real estate values are often down. Sellers may have a strong desire or need to sell, meaning you as the buyer can ask for lower prices, concessions, or other creative terms when buying.  

When you go into land banking, the best time to sell is when the land is developing.

Land almost always appreciates and is relatively cheap to acquire in Nigeria. Abuja is one of the best places to land banks in the country. Simply buy some plots near a soon-to-be-developed district, wait, and bank (profit).

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Hi there, I'm Adeola, a seasoned real estate consultant with a wealth of experience in the Lagos property market. I'm passionate about helping clients find their ideal properties, be they luxurious homes, commercial spaces, or investment opportunities. I've built a reputation as a trusted advisor in the industry. If you're looking for expert guidance and support in navigating the Lagos real estate landscape, I'm here to help. SEND ME MESSAGE