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You may (or may not) have heard the term "Landbanking" before, and are probably wondering just what it means. You're pretty sure it doesn't involve filling up your safe deposit box with sod samples, but beyond that, you're probably a little hazy on specifics.
Is LandBanking Something New?
Actually, there's nothing new about the concept - every farmer who's sold his acreage to a developer for a tidy sum is a bonafide Landbanker (even if he never knew it).
Old MacDonald Had A LandBanking Farm
Let's look at how a typical farmer becomes a LandBanker. He needs a good bit of land to graze his livestock, or grow his crops. He certainly can't afford to buy it right in the middle of town, so he goes some distance outside of the town center, where the land is more affordable. But, as small towns are likely to do, the town his farm is located outside of soon begins to grow.
Let The Town Come To You
As it spreads out, it soon starts heading right in his direction. Before too long, some real estate developer is looking at those empty farm fields, and picturing shopping malls, high-rise apartments, industrial parks, business complexes. At some point, the farmer is likely to find a man standing on his doorstep, waving a large check.
If the farmer is a savvy fellow, he cashes the check, shops for some nice, affordable land even farther out of town, takes his corn and his cows out there, and waits for the still-growing city to come to him - again.
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Isn't Every Homeowner a LandBanker?
Not really. The difference is, you bought your home (and the land it sits on) primarily as a place to live. Of course, if you're like most people, you may feel that it's the best investment you ever made. If and when you sell it, you're likely to turn a very handsome profit indeed. Still, you won't be selling it simply to make money, but rather because of some other factor - a need to relocate, a desire for another home (bigger, smaller, or in another part of town), or whatever.
LandBanking Defined
Landbanking, while a fairly new term, simply describes the practice of buying unimproved land in a location that's likely to undergo development in the not-too-distant future. Instead of putting your money in the bank and leaving it there to grow modestly, you put it into a parcel of land instead... with the expectation that it will grow both more rapidly and more impressively.
Is LandBanking Just Another Name For Real Estate Investing?
LandBanking isn't just real estate investing - it's hassle-free real estate investing. Unlike most real estate investing options, it's passive. That means your land investment shouldn't require any active participation from you personally.
We'll get into that in more detail in the next section - just click the link below.
NEXT: LandBanking vs. Improved Real Estate
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