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Land-banking, its Pros and Cons

Posted by DanbelPro@InvLtd on April 21, 2021
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A concept relatively new to most real estate investors in Nigeria is land banking, one of the most overlooked and underused strategies.

Land Banking 101: An Introduction

The word “land banking” nearly perfectly describes what it is. Rather than putting money in a savings account (where it will earn a maximum of 1% interest per year) or the stock market (which has become increasingly volatile in recent times), some investors have taken a different approach by purchasing LAND and in doing so, putting their money into a tangible, fixed asset that cannot be broken, stolen, or destroyed.

Most new investors overlook vacant land because it does not sound exciting. As a result, many would-be land investors overlook many of the benefits of land over traditional real estate investments (such as houses, apartment buildings, commercial properties, and so on). Unlike other residential and industrial houses, land is inexpensive to purchase… there are no utility bills, no occupant issues, no termite infestations, no leaky faucets, and no faulty toilets.

Consider this: you can purchase a piece of barren land now, move away for ten years, and nothing will have changed when you return. Is there a more secure investment?

Consider the economics of land: it is a resource with an ever-dwindling supply (after all, they aren’t producing any more) and ever-increasing demand. Given the attractiveness of land ownership, I always find myself scratching my head and asking, “Why aren’t more investors interested in this?”

The History of Land Banking

John Jacob Astor, who used this strategy to become the first multimillionaire in the United States, is one of the most well-known examples of land banking over the past 500 years.

When he bought large areas of land that are now known as “Manhattan,” he realized the power of land banking.

He bought this property at a time when no one else saw it as a possibility. Astor’s estimated net worth at the time of his death would have been $220.1 billion in 2021.

The Pros and Cons of Land Banking

Most buyers aren’t interested in this opportunity because they lack patience. People don’t want to wait decades to see their money grow; they want it now.

It’s a reasonable objection, given the length of time it takes to execute a land banking plan. The land banking strategy could take decades to bear fruit (if it produces results at all).

The length of time taken for the land banking strategy to succeed adds to the risk and uncertainty found in every investment strategy. Many investors prefer to have their money now rather than in the future, and the “waiting game” is arguably the most significant disadvantage of land banking.

On the other hand, if a real estate investor can identify a growing market and buy properties in that market’s path, the returns can be exponentially higher than many other long-term buy-and-hold investments. Especially if the land can generate cash flow (for example, by leasing land to a farmer or other end-users who will pay the owner a monthly lease payment).

Shenzen, China 1982 Vs 2010

Tokyo, Japan 1945 Vs 2014

Dubai, UAE 1991 Vs 2017

Think about it. What if you had bought land in these areas BEFORE their explosions in growth?

Is Land Banking a Good Investment?

Examine your nearest major metropolitan area today and compare it to how it appeared ten years ago. If a city is expanding, new residential neighborhoods and commercial subdivisions will be built on a regular basis. Regardless of the state of the real estate industry, new shopping outlets are constantly being built or revitalized.

All it takes is for an investor to go in and buy land on the outskirts of a city and then they wait for the population to grow to them. They’re buying a property at today’s low prices (before anybody else perceives the value) and waiting until the city grows to them. When this happens, the land prices spike in value and they’re able to cash in on their land investment. MANY multi-millionaires have been created from this one strategy, and you can do it too.

Though Ibeju Lekki is fast-growing, it is still largely undeveloped. Take advantage of this opportunity to buy land NOW before it is too late.

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