Land Banking In 2023

In times of uncertainty and extreme volatility, the natural investor reaction is to retreat. Some will put their money in a bank, either earning no or minimal interest.

​​Others will hoard cash, but both options go against Warren Buffett’s first rule of investing:

“The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule.” -Warren Buffett

Shelving your money is effective for shielding your money from market volatility. Still, it’s a sure way to lose money when factoring in inflation since even the best bank rates on CDs, savings accounts, and money market accounts typically fall short when factoring in inflation – with the gap even more pronounced in a high inflation climate like the one we’re in now.

Now, there is another way of banking your money without suffering losses investors experience with typical fixed-income bank assets. This type of banking is land banking.

What is land banking?

Land banking is the practice of buying land as an investment, holding it for future use, and making no specific plans for its development. In a volatile environment, the wealthy actively participate in land banking to shield their capital from volatility and preserve capital while benefiting from an underlying appreciation that typically keeps pace with or exceeds inflation.

For 2023, land banking is an ideal investment strategy for those seeking safe shelter for their capital while avoiding the depleting effects of inflation associated with putting money in typical bank products.

Besides capital preservation, here are the merits of land banking as an investment strategy:

Potential for Long-Term Appreciation.  

​Land is a finite resource and tends to appreciate in value over time, as with other scarce assets. By holding onto land for a long time, land banking investors can realize significant appreciation in value and potentially earn a substantial return on investment. Even if the goal is to land bank for a short time in the right market that is poised for growth, land banking can still result in tangible gains for the investor when the asset is sold.

Lower Risk.

​Compared to other real estate investments, land banking can be relatively low risk because there is little maintenance required and there are no tenants to have to deal with. In addition, land is a tangible and stable asset that tends to hold its value over time.

Flexibility.

​Land banking can offer investors a great deal of flexibility in terms of how they manage their investments – especially in a dynamic market that is experiencing growth.

​​When the broader markets stabilize, an investor has several options:

  • They can choose to continue to hold onto the land and benefit from the significant appreciation down the road.
  • Can cash out and allocate their capital to another real estate investment.
  • Subdivide the land to increase the value of their holdings and either hold onto the subdivided parcels or sell them and cash out.
  • Develop the land for a specific purpose, or sell it when market conditions are favorable.

Diversification.

​Land banking can be a valuable tool for diversifying an investment portfolio, especially across markets and geographic locations. Offshore land banking in a stable foreign country that affords foreigners the same property rights as citizens is a strategy embraced by smart investors.

Holding onto land as an asset has afforded investors the benefit of spreading their investments across different types of assets and minimizing the overall risk of their portfolios.

Potential Tax Benefits.

​Land banking can offer potential tax benefits, including deductions for property taxes and depreciation.

Social Impact.

​In some cases, land banking can be used to support social and environmental goals, such as preserving green spaces or supporting affordable housing development.

The wealthy have long used land banking to preserve capital in volatile and uncertain times, but it’s not the only type of environment in which they land bank. They have also been known to land bank if they anticipate significant growth in particular markets with no preference for domestic or foreign markets. They’ll chase growth if the market and geographic locale are politically and economically stable.

For the rest of us, land banking can be an effective investment strategy for those looking to preserve capital, diversify their portfolio, minimize risk, and achieve long-term growth and appreciation in value. However, as with any real estate investment, it is important to conduct thorough research and due diligence before investing in land and to develop a long-term plan for holding and developing the property.