If we all had the benefit of hindsight, we’d all be property millionaires by now. How many times in the past, have you thought, ‘if only I had purchased that property when it was for sale 10 years ago’; too many no doubt.
However, circumstances mean that we aren’t always in a position at the time to purchase, or perhaps are not equipped with the relevant knowledge to have the foresight to make a decision that could prove profitable in the long term.
Land Banking is a term you may be familiar with; it’s simply the act of purchasing a property for its location/future potential (whether vacant or with a structure on it), at its price today, and holding for a time period for capital gain – in particular, it relates to parcels of land that may end up as future development sites. This is how many professional property developers have made money from property.
Many large property development companies buy Greenfield sites, farms or large tracts of land and put them in their “land bank” to ensure they have a sufficient stock of land for future property developments. Over time they rezone the land, put in the necessary roads and infrastructure, undertake a subdivision and on-sell the individual lots.
However, it can also be a savvy strategy for smaller investors to make attractive capital gain. Many successful boutique investors have bought older homes in locations on the cusp of change; it might be significant future infrastructure projects, or it could be in a locale where gentrification is starting to occur. It’s a strategy that involves patience and long-term vision; and in the meantime, the property can be rented to either negative or positively gear, depending on your situation.
Property Commentator and Market Analyst Michael Yardney states “many investors have made small fortunes by land banking because they are able to use a number of different property wealth accelerators that, when combined, generate substantial profits”.
Land appreciates – we all know that it’s the land component of your property investment that appreciates, so buying a property close to its land value can be a smart strategy.
Adding Value – by obtaining property development approvals you can add substantial value to a site.
Once you obtain a development approval for subdivision or for multiple dwellings, apartments or townhouses, you’ve taken out one element of the property development risk – the council approval process.
This makes your site more attractive to developers who may be prepared to pay a premium for it, giving you the option of selling for a profit, or refinancing and continuing with the property development process.
Of course, the optimum time to buy for this purpose is in a softer ‘buyer’s’ market, to truly gain maximum benefit in the long term. Like any investment, it is imperative you do your research, talk to professionals, due your due diligence to minimise risk.
Here at Wright Place, we can assist you to reach your property goals. We have the local knowledge and experience to provide professional advice in relation to property purchases for whatever purpose.