What is land banking? Simply put, it's the process of buying and holding unimproved real estate. Land banking is done for a number of reasons. Local governments can engage in it in order to preserve stretches of land or to have the option of changing their use at some time in the future. Individuals also utilize land banking as a potentially very lucrative investment.
Over the years, more than a few fortunes have been realized by way of land banking. Investors who understood the concept of purchasing – at very low prices – raw land that could later be developed became quite wealthy. But it hasn't ended; that same concept still works today. And with the current real estate bubble continuing to burst all around us and affecting virtually every category of ‘improved' properties, investing in undeveloped land is proving to be a very sound financial decision.
A cornerstone principle of land banking is the notion of the land's use, not only now, but in the future as well. Unimproved land can easily be purchase with only a few hundred dollars. But the thing that will truly determine its potential value in the future is what's known as the land's highest and best use. In short, would the land be at its most valuable if it were used to build a manufacturing plant, or a shopping mall, or perhaps parceled out for a housing subdivision? Savvy investors use this principle to buy land that lies in the direction and pathway of economic progress. Eventually, as construction and growth move toward the property, its value begins to rise. And depending on how the land is ultimately projected to be used, the profit for the land's owner can prove to be truly astronomical.
Land banking can be a very effective method for funding retirement. Simply purchase a piece of land that you know is in the path of growth and progress. Then take advantage of its hefty appreciation by selling it when you're ready to retire. If you don't want to wait that long, buy a parcel of land that isn't being used to its highest and best purpose and change its use, or buy for pennies on the dollar.
I always purchase land for pennies on the dollar, so that no matter if I want to sell quickly for fast cash or hold on to for later use, I know that I will make a huge profit when I decided to sell. I have purchased thousands of parcels of land in the few years I have been investing in real estate, the majority I have sold quickly to gain wealth fast, some I sold on terms to create monthly cash flow and some I have chose to hold onto. Whenever you decide to sell or however you decided to sell your land it is up to you, my only advice is to remember that in the real estate world the profit is made when you buy and only realized when you sell. So always buy at a good price.