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 to NO ONE.
There are so many people 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
What is Land Banking?
If you are coming to the idea of 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 amount with the goal of holding unto it for a while and sell it for profit at a future date when the price appreciates.
Investors acquire land by tracking locations, which 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?
There are many large real estate development companies in Nigeria that engage in land banking. These companies buy undeveloped land, farms, and other greenfield sites after thorough research on 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 to put their funds in purchasing undeveloped lands from their land banks; investors hold them for a while intending to resell 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 also be done by smaller private investors. The only difference being, that smaller investors would be acquiring 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 investment has 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.
Land is one of the assets that have the potential to appreciate over a more extended period, so investing in land that has high development potential at the current or lower market value ensures maximum returns to the investor.
.#2: Value addition
You can decide to make improvements on the land which 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 begins to increase 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 to run. It’s a type of investment that doesn’t necessarily need you to have millions of naira.
#4: Seller Financing Can Increase Your Income Potential
Seller financing is essentially the same thing as “lending money” to the person who is 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 (first few months of 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), Mpape (Abuja). As an intelligent investor buying this vacant land offers you a more accessible and more affordable way into the real estate market.
When you buy a piece of land for the right price, Land banking can be the type of 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. No 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 through logging on 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
In this real estate investment niche, there’s low competition. 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, multi-units. It’s not their fault; almost everyone is focused there.
If 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 time.
#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 it might be easier to find a buyer for a smaller, more affordable parcel of land, as opposed to 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 subdivision mapping is recorded in the county records.
#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 as a result of which, 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?
- The land is a safe investment that will always be in demand for one reason or another.
- The land is very inexpensive to own as a Long-Term Investment; the investment could be made according to your financial capacity.
- You can grow your returns quickly.
- 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. Depending upon your tax bracket is generally 15% or 20%, which is usually less than one’s tax bracket.
- 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.
- There will always be value on 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.
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 in the scope 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 that just want to invest, wait and forget.
After thorough research on locations prone to quick appreciation and development, these put their funds into any investor going into 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 – Real Estate Investment.
Suppose that you now decide to go into land banking investment. In that case, a buyer’s market can be a great time to start investing 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 situated at a developing stage.
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).