LandBanking vs. REITs

A REIT (Real Estate Investment Trust) is really a kind of real estate-based mutual fund. When you buy shares in a mutual fund, your money goes into a pool, which the fund managers use to invest in stocks, bonds, or a combination of both.

Mutual Funds Meet Real Estate.
The managers of a REIT use the trust's pool of funds to invest in real estate instead of securities. Most REITs buy and hold either developed properties, or pools of mortgages on developed properties. While these trusts can grow their bottom line through sale of these assets, their principal aim is to generate income either from rentals of the properties, or interest paid on the mortgages.

Advantages of REITs.
Many of the advantages REITs offer investors, not surprisingly, are similar to the advantages of mutual fund ownership. Shares can be quite modest in size and cost, allowing individuals with only limited funds to participate. And REIT investments are passive - shareholders have no property management worries to deal with. That job falls to the trust's management.

Who's Minding the REIT?
And, as with a mutual fund, the track record of the management team is all-important. As a shareholder, you're eligible to receive a portion of any profits the trust will make...but you're not in control of the investment. You must trust (that's what the "T" stands for, remember?) the REIT administrators to make a good invest-ment with your money.

The Difference Between REITs and LandBanking.
Typically, REITs are designed primarily to produce income, rather than growth. A REIT will hold properties that generate regular rental income; a mortgage REIT will hold paper that generates regular interest payments. REIT shareholders receive periodic payments from this income.  

Since LandBanking focuses on undeveloped, unimproved land, the aim here is growth. LandBanking is a "buy and hold" investment, where profits are not realized until the land is re-sold.

The Deed Makes The Difference.
As a LandBanker, you're the registered owner of the property you're investing in - you'll have the deed to prove it. You can go see your land, walk on it, and sell it to anyone you want, whenever you want. At the same time, your ownership is passive, just like a REIT - since the property is unimproved, you're free from all the hassles that go with being a landlord.

Can I Bank My Retirement On LandBanking?
While few people are aware of it, the fact is that some real estate investments -- including LandBanking -- can indeed be included in your Individual Retirement Account, with all the tax-deferred benefits that provides. It's the next topic we'll cover.

NEXT: LandBanking In Your IRA.