Land Banking is on the rise today as an alternative investment medium with profits and principal to be returned to you after three to five years depending on when permission is given to develop the land. This article will give a quick introduction to the concept behind land banking and how it can fit as a part of your real estate investment portfolio.

Real estate investment horizons or in laymen terms, the time taken for you to recover the amount that you invested may take anything from a month if you flip properties to several years if you are talking about longer term investments. Land banking falls within the second category and qualifies as a longer term investment and returns however can be as much as four to five hundred percent of the initial sum that you invested into the property.

What typically happens is that the developer bids for land that is not developed and then puts money to buy the land. Note in some jurisdictions there is usually some time lag of a few years before the city gives the go ahead for the developer to start building the development on the land. So the developer then sells the property to another company who then sells the property to investors who buy units.

Three to five years later, the plots approval comes in and the developer then purchases the property from the investors at many times the price and then you can exit from your investment. Spend some time quizzing the land banking agent about what type of exit time frames is he looking at and find out the returns and compare it against the rest of the returns that you are looking in other types of real estate investments. Always balance the risk of loss and reward mentally so that you can make a rationale decision when faced with a high powered real estate investment sales pitch.

In conclusion, this is a long term investment with the unknown factor of when the land is given the green light to be developed further. Real estate investment thus may be slightly more risky than other types of real estate investment. That said, it is submitted that land banking can be used as a longer type form of real estate investment that you can add to your real estate portfolio.

By Joel Teo 2006 All Rights Reserved