Land banking is the process of buying and holding unimproved real estate. Land banking is done for a number of reasons. Government 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 utilise land banking as a potentially very lucrative investment. Investors who understood the concept of purchasing, at very low prices, raw land that could later be developed became quite wealthy.
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 purchased with very small amount. But the thing that will truly determine its potential value in the future is what is 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 parcelled out for a housing subdivision? Investors who possess sound knowledge 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.
Reference
Jack Bosch (n.d.). Land banking. http://www.buzzle.com/articles/land-banking.html
