Land banking is the practice of purchasing land with the intention of holding on to it until such a time as it can be sold for substantially more than was initially paid. In the troubled times, land is becoming increasingly popular as an investment, because it is a tangible asset as opposed to Shares or Bonds. This sort of investment has gained such popularity that it is now possible to land bank worldwide. Several firms set up to offer opportunities to do so.
Parcels of land desirable for land banking are those that lie on the fringes and in the growth corridors of rapidly developing cities. The investor’s initial goal is to buy undeveloped land that will increase in value because it lies in the path of urban growth. The key is to identify these parcels well in advance of the developers, secure control, and wait for their values to mature. By a diligent research and financing or managing of a land banked property, one can surely realize a handsome profit upon the sale.
One good retirement investment strategy is to invest your IRA into real estate. With the stock market heading south, rolling over a portion of your IRA into real estate could diversify and reduce your risks. There can be tax benefits in converting IRA funds from one type of asset to another, and you could potentially roll your capital gains on the land into a future real estate purchase, bypassing the need to pay tax on the capital gains.
Consult a finance professional as to the tax treatment of any proposed change to your investment strategy.
A land banking specialist will be able to provide you with historical performance data from land banking as an investment strategy. Bear in mind that past performance is not an indicator of future earnings, and that commission-based salespeople have a strong incentive to “gild the lily”, so don’t take any historical performance data as a prediction of the returns you can expect.
If you invest your IRA into real estate, you will be undertaking a speculative investment. If you have chosen your land well, you stand to make quite good gains. On the other hand, should the land never receive planning permission for development, you could find yourself sitting on a very expensive white elephant. It is very important that you do your due diligence thoroughly.
Remember, too, that if you invest your 401k into real estate, you are buying into a much less liquid asset than paper assets. If you need to rebalance your portfolio, you are unlikely to be able to trim 20% off your land parcel and sell it down. A parcel of land is an all-or-nothing investment, unless your 401K reserve is large enough to spread across several land banking parcels.
Land banking, done the right way, has the potential to return higher-than-average investment gains in the long term. A land banking specialist can provide information about past returns and investment opportunities. However, there are significant risks involved in shifting from paper assets to land banking, and you should obtain professional advice to ensure that you are fully aware of the risks before making a decision to change your investment strategy.
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